Electric vehicles (EVs) are the future of driving. More drivers are opting for an electric car and automotive firms are investing billions in EV factories here in the UK. The government should hit the accelerator on the transition. The best way to do this is to make driving EVs cheaper. This will encourage people to make the switch, boost the car industry, and ease cost of living pressures for motorists.
Ahead of the budget, there are two tax cuts that the government should consider that would cut costs, make charging fairer for drivers, and nurture the EV market.
Despite some news stories to the contrary, the EV market has achieved strong growth. Sales of pure electric cars have now exceeded one million, accompanied by a further 600,000 plug-in hybrids. We’ve seen that, regardless of the delay to government targets for the phase out of new petrol and diesel cars, demand for EVs is steadily building, with EVs making up over 16% of all new car sales last year. Strong EV sales are being seen in the second-hand market as well. Almost one in ten second-hand cars bought is electric. This is especially important in the UK as 80% of us buy our cars second-hand.
A targeted tax break has been responsible for much of this growth. Company car tax for vehicles that are electric or emit very small amounts of CO2 was slashed in 2020. The tax is currently just 2% for pure EVs, whereas the most polluting cars face a rate of 37%. On a £20,000 car, the tax saving of getting an EV over a petrol car can be over £1,100, giving businesses a clear incentive to switch to electric. This mass market is bringing down prices and building a supply of second-hand vehicles.
Binding EV targets for manufacturers are also now in place to build the supply of cars. The government’s Zero Emission Vehicle Mandate is adding to the momentum of EV sales. As of January this year, car manufacturers have to sell an increasing proportion of their total sales as EVs up until 2035. This year, 22% of sales must be electric, increasing to 80% by 2030. To reach these targets, manufacturers will have to expand production and compete to secure sales, driving down the cost of vehicles with offers and discounts.
The supply of EVs is increasing and prices are gradually coming down, but charging still remains a barrier. There are two ways that the government can cut charging costs and make switching to an electric car fairer for drivers.
Firstly, the government should equalise VAT rates on public and private chargers at 5%. The costs of charging currently depend on whether you have a driveway or not. The cost differential is in part down to VAT. Charging up on your driveway using household electricity has 5% VAT applied, whereas on-street charging is subject to 20% VAT. This is clearly unfair to those that don’t have the luxury of off-street parking and can add up to £227 more per year to charging costs.
More than a third of Britain’s households don’t have a driveway or somewhere off-street to park their car. And it is those on the lowest incomes that are hit hardest – 44% of the lowest income households do not have off street parking, compared with 22% of the richest. Electric cars are much cheaper to run than petrol or diesel cars, so the government should be doing a lot more to help lower income households make the switch. Cutting VAT on public chargepoints is a fair tax cut that will put money in people’s pockets.
The second is making electricity prices cheaper. Gas and electricity both have green levies applied to them. These pay for various government schemes, including fuel poverty alleviation programmes, renewable energy support, and energy efficiency improvements for those that can least afford them. These are important and necessary, but electricity currently bears nearly all the green levies, despite being a greener fuel than gas. This acts as a drag on electrification in several sectors, including transport where the costs of charging electric cars are higher than they should be because of the levies.
To make electricity bills cheaper not only for electric car users, but also for heat pump users, the government should ease the green levy burden on electricity. The government should move some of the green levies on to gas bills and some should be subsidised out of general taxes, thereby reducing electricity bills, ensure dual fuel bills remain flat for those still reliant on gas, and maintain the same level of renewables and energy efficiency investment.
More and more drivers are making the change to electric cars. They should pay fairly for charging. The government should consider two tax cutting measures that would level the playing field for EV drivers and boost the UK’s EV market.
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