UK Government Considers Adjusting ‘Luxury Tax’ Threshold for EVs
The UK government is poised to reassess a key financial barrier affecting electric vehicle (EV) uptake: the Expensive Car Supplement (ECS). Currently, this surcharge adds £425 annually for five years to the Vehicle Excise Duty (VED) for cars priced above £40,000. For electric vehicles, this means an additional £3,100 over six years, potentially undermining incentives for drivers to switch to zero-emission vehicles.
The ECS, combined with the standard annual VED rate of £195, has made electric cars more expensive. Previously exempt from both ECS and VED, electric cars became subject to these taxes from April 1, 2025. According to British Autocar, the average electric car in the UK is priced around £50,000, roughly £10,000 more than comparable internal combustion engine models. This price difference makes the ECS particularly impactful.
The current tax structure has been criticized for being counterproductive to the government’s electrification agenda. Under the Zero Emission Vehicle (ZEV) mandate, manufacturers must ensure that 28% of their 2025 sales are electric, rising to 80% by 2030. However, in April 2025, battery electric vehicles (BEVs) accounted for just 20.4% of new registrations, below the target. Private EV sales remain particularly low, at 10.7%, as retail buyers are deterred by the higher upfront costs of EVs like the BMW i4 and Volkswagen ID.7, which start well above the £40,000 mark.
In response to industry concerns, Roads Minister Lilian Greenwood indicated that the government is reviewing the ECS for zero-emission vehicles. “We will consider raising the threshold for zero-emission cars only at a future fiscal event to make it easier to buy electric cars,” she stated. This potential adjustment follows a noticeable drop in EV market share after the ECS came into effect in April 2025.
Industry leaders have welcomed the reconsideration of the ECS threshold. Stellantis UK boss Eurig Druce and Ford have criticized the current tax structure, warning it could slow EV adoption. The industry is expecting a new wave of more affordable EVs from brands like Stellantis, Renault, and Volkswagen in the next two years, which could accelerate adoption if the fiscal landscape is adjusted accordingly.
The government’s recent changes to the ZEV mandate framework have been welcomed, but many argue that without an ECS adjustment, these reforms fall short of creating a cohesive policy environment for electrification. As the government continues to review its policies, the potential increase in the ECS threshold could provide a much-needed boost to EV sales in the UK.
