New regulations regarding vehicle excise duty (VED) in the UK are poised to disproportionately impact drivers of electric vehicles (EVs), potentially discouraging the shift towards electric motoring. Data from Auto Trader, a leading online vehicle marketplace, reveals that EV buyers face a significantly higher likelihood of being hit by the “luxury car tax” compared to those opting for petrol or diesel models.
The issue centers on changes taking effect April 1st. Previously, electric vehicles were exempt from VED. However, the Treasury will remove this exemption, subjecting all EV owners to at least the standard rate. This standard rate will be £195, applicable from the second year after a vehicle’s registration. Furthermore, vehicles registered from April 1st with a list price exceeding £40,000 will also be subject to the “expensive car supplement,” also known as the luxury car tax. This supplement amounts to £425 annually from years two to six after the car is registered.
These changes were first announced in November 2022 by then-Chancellor Jeremy Hunt, under the Conservative government, with the stated aim of making the motoring tax system fairer. The Labour Government is continuing the policy.
Ian Plummer, commercial director of Auto Trader, has voiced concerns, stating that the new rules provide consumers with “additional reasons not to make the switch” to electric motoring. He points out that the higher cost of manufacturing batteries frequently results in EVs having list prices surpassing the £40,000 threshold. Auto Trader’s research indicates that 56% of EVs on their site, which are up to five years old, fall into this category. In contrast, only 16% of petrol or diesel cars in the same age range exceed this price point.
“EVs up to five years old on our site are three-and-a-half times more likely to be hit by the expensive car supplement than internal combustion engine cars in the same age range. That kind of difference is unhelpful for efforts to persuade drivers to switch.” – Ian Plummer, Commercial Director, Auto Trader.
Plummer advocates for a delay in the duty increases, arguing that it’s prudent to avoid harming the adoption of EVs during a period of global uncertainty. He also notes that despite modest gains in Treasury revenues, these increases risk undermining broader efforts to encourage the adoption of EVs.
The government’s zero-emission vehicles (ZEV) mandate further complicates the situation. This regulation requires at least 28% of new cars sold by each manufacturer in the UK this year to be zero-emission, typically meaning pure electric vehicles. While the market share of pure electrics last month was 25.3%, manufacturers who fail to meet the mandate face a penalty of £15,000 per polluting car sold above the limits. The government is currently reviewing potential changes to the rules based on feedback from a recent consultation.
Steve Gooding, director of the RAC Foundation, a motoring research charity, suggested that the Treasury’s rationale for the expensive car supplement is that those spending over £40,000 on a car can afford to pay more tax. However, Gooding expressed doubt that this applies to used car purchases, because their value often depreciates rapidly in the first few years.
Quentin Willson, founder of FairCharge and an advisory board member of EVUK, pro-EV groups, strongly criticized the luxury car tax, arguing it would discourage private buyers with an annual tax of £620. He added that it diminishes incentives for buyers to make the switch from combustion engine vehicles to electric models.
A Treasury spokesperson defended the policy, stating that the shift to electric vehicles supports economic growth and is crucial for tackling climate change. They emphasized that the government’s approach aims to ensure fiscal stability during the transition to EVs, offering targeted incentives to encourage adoption.
