UK Government Eyes Adjustment to ‘Luxury Car Tax’ for Electric Vehicles
The UK government is considering raising the threshold for the Expensive Car Supplement (ECS) on electric vehicles (EVs) in an effort to encourage their adoption. Currently, all cars, including EVs priced above £40,000, are subject to the ECS, which adds £425 annually in additional vehicle excise duty (VED) from years two to six after purchase.
The ECS, combined with the standard annual VED rate of £195 applicable to EVs from year two, results in a total tax bill of £3,100 for cars valued over £40,000 in the first six years. Critics argue that this policy contradicts the government’s zero-emission vehicle (ZEV) mandate, which requires manufacturers to achieve a 28% EV sales mix this year, rising to 80% by 2030.
In April, EV sales accounted for only 20.4% of new car registrations, falling short of the previous year’s target of 22%. Moreover, EVs currently represent just 10.7% of private car sales. Industry leaders have been calling for incentives to encourage retail buyers to switch to EVs. Eurig Druce, Stellantis UK boss, urged the government to review the new taxation and consider raising the threshold to reduce barriers for UK drivers transitioning to electric cars.
Ford has also criticized the government’s decision to impose VED on EVs while penalizing manufacturers for not meeting sales targets, stating that it risks slowing adoption at a critical time for the industry.
Minister for the Future of Roads, Lilian Greenwood, indicated in a letter to a local MP that the government is open to adjusting the ECS scheme. She acknowledged the disproportionate impact of the current threshold on zero-emission car buyers and suggested that raising it could make EVs more accessible.
While no specific timeline was given, the Autumn Budget in October is expected to potentially address this issue. The recent surge in EV sales before the ECS took effect on April 1, 2025, followed by a drop in market share the following month, highlights the tax’s impact on consumer behavior.
The higher cost of EVs compared to their internal combustion engine counterparts, largely due to expensive batteries, remains a significant barrier to adoption. For instance, the BMW i4 saloon starts at £51,280, whereas the cheapest 3 Series saloon costs £41,875. Similarly, the Volkswagen ID 7 Tourer is priced at £51,795, while the comparable Passat estate costs £39,840.
Although the government has recently tweaked the ZEV mandate framework to make it more achievable for manufacturers, the ECS threshold remains unchanged. The potential adjustment to this tax could significantly influence EV adoption rates in the UK.
