Autumn statement: VED on EVs – Industry responds

Published:  17 November, 2022

For the automotive sector, VED being applied to EVs was THE big announcement in Jeremy Hunt’s Autumn Statement 

The decision to impose road tax on EVs from 2025 onwards was one of the headline announcements made by Chancellor of the Exchequer Jeremy Hunt as part of the Autumn Statement today (17 November), as the government looked to increase tax takes as the UK entered what is predicted to be a long recession.

Up until now, electric vehicles had been exempted from Vehicle Excise Duty, but the fact that they are set make up half of all cars sold in two years time, as predicted by the Office For Budget Responsibility (OBR) has led the government to make the long-expected move. Announcing the measure, Jeremy Hunt said: "Because the OBR forecasts half of all new vehicles will be electric by 2025, to make our motoring tax system fairer I've decided that from then, electric vehicles will no longer be exempt from vehicle excise duty."

Contribution
SMMT Chief Executive Mike Hawes said: “We recognise that all vehicle owners should pay their fair share of tax, however, the measures announced today mean electric car and van buyers – and current owners - will face a significant uplift in VED. The sting in the tail is the VED supplement which will unduly penalise these new, more expensive vehicle technologies. The introduction of taxes should support road transport decarbonisation, and the delivery of net zero, rather than threaten both the new and second-hand EV markets.

“With a ZEV mandate on the way for car and van manufacturers, we need a framework that encourages consumers and businesses to buy electric vehicles. We look forward to working with government on how to transition the market and ensure the tax framework on road users supports this objective.”

Head of Policy at the RAC Nicholas Lyes said: “After many years of paying no car tax at all, it’s probably fair the government gets owners of electric vehicles to start contributing to the upkeep of major roads from 2025. While vehicle excise duty rates are unlikely to be a defining reason for vehicle choice, we believe a first year zero-VED rate benefit should
have been retained as a partial incentive. But we don’t expect this tax change to have much of an effect on dampening the demand for electric vehicles given the many other cost benefits of running one.”

Nicholas added: "The fact that company car tax increases on EVs will be kept low should also keep giving fleets the confidence to go electric which is vital for increasing the overall number of EVs on our roads.”

Switch
According to Paul Daly, Partner at accountancy Group UHY Hacker Young, putting VED on EVs poses the risk of deterring carbuyers from making the electric connection: “It’s going to be increasingly difficult to get people to switch to electric cars if they are more expensive to buy than petrol or diesel cars and no cheaper to run. Saving several hundred pounds a year in Road Tax is a meaningful incentive to switch to electric. Once that’s gone an electric car is less appealing to many. Along with the phasing out of grants, the sky-high price of electricity and the costs of finance as interest rates rise, the money involved in having an electric car has become a real problem for a lot of households. If the government is serious about net zero the EV market will require more support than this.”


The application of VED may not be the only additional cost EV buyers face however. As founder of ChooseMyCar.com Nick Zapolski noted the Autumn Statement also removed the exemption EVs held from the £335 premium supplement on new cars. As a result, an EV worth £40,000 or more could cost its owner £520 for the road tax, even though it is the zero emission option. He said: “While our research suggests people are interested in EV ownership, it’s undeniable that the high purchase price of new EVs - and the lack of second hand ones on the market - mean it’s out of reach for many drivers. Any new tax on them will just exacerbate this situation – and could be seen as an indication that other benefits of EV ownership are under threat.
“This new ‘Tesla tax’ means that some people will now be paying more for their road tax than someone in an old banger, which is not in line with the government’s green credentials. While we appreciate that the higher amount of EV drivers means a drop in road tax, this seems a huge step up and is a concerning sign as to what may lay ahead.”


Incentives
As far as CEO at car leasing comparison website LeaseLoco John Wilmot is concerned, the Chancellor made the wrong decision: “This is another kick in the teeth for electric car owners and sends out completely the wrong message. The government has ambitious Net Zero targets to meet, and putting more road blocks in the way of people early switching to electric vehicles is not the way to hit those targets. Plug-in grants have gone, soaring electricity prices have hiked charging costs and now for the first time EV owners will pay Vehicle Excise Duty. This decision could put the transition to electric cars back years. Where are the incentives now for car owners to early switch to an EV?”

He added: “This is an ill-thought out and ill-judged decision and could have massive repercussions for UK’s Net Zero ambitions.”

Ian McVicar, Senior Director –Consulting Lead for Manufacturing, Automotive and Life Sciences at NTT DATA UK&I observed: “With the £54 billion hole in public finances, it was inevitable the government would remove the exemption to Vehicle Excise Duty to mitigate the reduction in the internal combustion engine tax base, particularly when 50% of new vehicles are expected to be electric in 2025. At face value this appears incompatible with the UK’s climate commitments, particularly after the recent COP27. However, although electric cars are beneficial in terms of emissions, they are not an environmental panacea. Taking into account the higher upfront cost of electric vehicles that puts them out of reach for many in a cost-of-living crisis, action to further incentivise the sharing of electric vehicles, improving individual’s wider environmental impact and overall mobility would have been welcome. With vehicles in the UK only in use on average 4% of the day, a valuable resource is available to be tapped.”


Short-sighted
Ian Plummer, Auto Trader Commercial Director observed: “The Chancellor is clearly looking for revenues, but the prospect of increased running costs will drive more would-be buyers away from EVs when other incentives are being scrapped and high energy bills are eroding the advantages of going electric. The 2030 ban on new diesel and petrol sales is looming ahead but measures like this will hardly encourage motorists to switch amid a cost-of-living crisis. An excise duty raid is short-sighted and sends the wrong message if we’re to be serious about getting EVs into the mainstream and beyond the wealthier car buyers who can afford the c.35% “green premium” of EVs over petrol or diesel equivalents. Our analysis shows that drivers can still save £80 per 1,000 miles by making the switch to electric, but this move will take away a big chunk of the ownership savings that are still very much needed to bridge what remains a significant purchase cost differential for EVs.”


Toby Kernon, CEO of vehicle subscription software provider Wagonex said: “The implementation of an electric vehicle road tax to fill a shortfall in budgets is a significant own goal by the government. The UK has specific, ambitious targets to reach net zero, which we are already struggling to meet, so to start taxing EVs will only add to this burden, and more worryingly, could be a sign of things to come. With the sale of new petrol and diesel cars ending by 2030, EVs and hybrid cars are the future of motoring. Ownership of EVs across the UK has increased exponentially in recent years and there are now more than one million EVs on the roads. While they’re often more expensive to buy than many diesel or petrol cars, the running costs are generally lower. So, adding tax to these vehicles could be a deterrent to future growth.”

He added: “However, if increased running costs are a concern for UK motorists, one alternative way to own a car is a subscription model which provides a way for UK drivers to trial an electric car on a short-term basis. This way, drivers can also minimise additional costs of owning a car such as insurance, repairs, maintenance – and tax increases – as they’re all included in the monthly fee.”

James Tew, CEO at iVendi, said: “There’s a long list of measures in the fiscal statement that add up to one simple fact - most people will have noticeably less cash in their pocket over the next few years and this will undoubtedly affect how much they have to spend on buying a car. The question facing the used vehicle sector is whether this is point at which the bubble of buoyancy the market has enjoyed in recent terms finally pops? On the face of it, you could certainly make an argument that this could be the case but then the market has continually exceeded expectations since the pandemic. Certainly, while stock supply remains low, as looks set to be the case, it is likely that sales will continue to be relatively solid. What we do expect to see is a renewed accent on cost reduction on the part of dealers and lenders, and further moves to extract as much value as possible from each unit sold, and we expect the benefits of digitalisation to play a part in this process.”


Early stage of adoption
Paul Hollick, Chair at the Association of Fleet Professionals said: “We have been strongly expressing that the position of EVs in the UK fleet sector remains at a relatively early stage of adoption and the increases in company car taxation, of 1% per cent year, seems well-judged to us at first glance. Crucially, they will allow fleet decision makers to plan for the second half of the decade as they continue the process of electrification. This is something for which we have been campaigning in conjunction with BVRLA and it is to be welcomed. Against this backdrop, the VED equalisation with ICE – something that will apply to the vast majority of EVs from 2025/26 - is disappointing but perhaps not unexpected. It does feel a little as though the government has given with one hand and taken some back with the other.”


Paul Burgess, CEO at Startline Motor Finance, said: “With inflation hitting 11% this week and further Bank of England interest rate rises likely in the coming months, it really does feel as though the measures in this budget are not so much part of economic headwinds as an entire storm. Personal finances are going to come under pressure in a way that we haven’t seen in more than a decade, perhaps initially peaking in Spring next year when support for energy bills is reduced.

“What can dealers do in the face of this? Well, many are probably examining their cost base and identifying areas where expenditure can be reduced, as well as looking to maximise sales. As part of this, we expect to see some rethinking of propositions, with an increased accent on safety net products such as warranties that help to protect against unexpected costs. Providing value and reassurance will be crucial.

“For lenders, there may need to be additional measures in place to ensure that existing customers are being supported where necessary. Also, the changing requirements of many new customers need to be considered, especially when it comes to ensuring that monthly payments are affordable in difficult times.”


Big question
Philip Nothard, Chair at the Vehicle Remarketing Association (VRA), said: “The end for low electric vehicle taxation has been signalled with their inclusion in Vehicle Excise Duty for the first time. Our experience is that the supply-and-demand situation for EVs in the used sector still remains quite volatile and their low running costs are a key attractor for consumers, so this is probably a retrograde move.”

“The big question for remarketing and the wider automotive sector, in addition to the energy crisis and general rising costs, is the risk that the government approach detailed in the fiscal statement will slow consumer spending at a time when the industry is attempting to push forward towards pre-pandemic levels of production. Inevitably, there is a risk of a 'forced' oversupply as a result of halting demand in this way which, if it materialised, would mean an about-turn from the market conditions we have seen in recent years.

“Already, recent interest rate rises in conjunction with high purchase prices and low levels of manufacturer support, are resulting in pressure on overall vehicle cost of ownership, and the impact of this is already starting to be seen in the market. From here, the key unknown factor is the degree to which this will affect sales in 2023 and beyond. Certainly, it should also be kept in mind that we are likely to see both further interest rate increases and a reduction in government intervention over energy bills. This is probably not the lowest point in this crisis.”

Inevitable
David Lewis, Head of Electric Vehicles and Energy at Select Car Leasing observed: “It was always inevitable that EV owners would one day have to pay VED or a similar tax so this doesn’t come as a great surprise. Road tax generates billions for the Treasury each year - and as more and more people move to EVs, that’s a large fiscal gap to plug. In my view EV road tax has been brought in at least two or three years ahead of time, as a reaction to a challenging financial outlook. While that’s disappointing on the face of it - and an embarrassing announcement to make during COP 27 - I don’t ultimately see this as being a deal-breaker for those looking to get behind the wheel of an EV.

“The first year VED for zero emission cars from 2025 will be set at the lowest rate - £10 - before moving to the standard rate of £165 a year.T here’s also good news for company car owners, too. Jeremy Hunt has promised to keep Benefit in Kind (BIK) rates for EVs low, with a small 1% per year increase from April 2025, for three years. We know from our own data that more and more people are leasing an EV as a company car, taking advantage of low tax rates and company Salary Sacrifice schemes, so that’s a welcome step. I’d urge anyone looking to drive an EV to act now before the VED rules apply in three years’ time.”

He added: “We should be incentivising EV ownership as much as we can, not giving people a reason to turn away from it. So, motorists need reminding of all the benefits of driving an EV. Even with the rising cost of electricity, you can still save hundreds of pounds on your annual fuel bill. The Benefit in Kind (BIK) tax payments for EV company cars are also temptingly low - just 2% - compared with a traditionally fuelled car. it’s also important to point out that when you lease any car, your VED is covered for the entire duration of your agreement, so it’s not a cost you need to consider. Above all else, let’s not make the introduction of road tax for EVs a reason not to go green.”

Disincentivising
Summing up on the application of VED to electric vehicles, NFDA Chief Executive Sue Robinson said: “The decision to introduce Vehicle Excise Duty and increase the tax burden for electric vehicles risks disincentivising families from making the transition towards more environmentally friendly vehicle types. Electric vehicles have experienced sustained and substantial growth in market share over the past decade, but there is still a way to go before the market fully matures. This is the latest in a line of reduced financial incentives to adopt electric vehicles. Strong incentives and tax exemptions are key to ensuring the UK retains a strong consumer market for electric cars. By removing these policy levers, electric vehicles become less appealing, and adoption will slow. Implementing VED for electric vehicles will create a situation where the least well-off car drivers are deterred from buying a new electric car when the time comes to replace their old one. It sends the wrong message at the wrong time.”

Infrastructure
On the positive side, the Chancellor also looked to safeguard infrastructure investment over the next five years, which would support the expansion of the charge point network. The government is set to extend the 100% First Year Allowance for EV chargepoints via legislation in the Spring Finance Bill to 31 March 2025 for corporation tax purposes, and 5 April 2025 for income tax purposes. Sue continued: ““Infrastructure is the foundation on which the UK is built on, the £600 billion announced in spending for public infrastructure projects is incredibly positive and we look forward to seeing the full details of what this entails for projects that will improve the experience for motorists like roads and charging stations.” Meanwhile, £13.6 billion of business rate support is set to be offered over the next five years, including the freezing the multipliers, increasing relief for retail, hospitality and leisure to 75%, and reforming transitional relief on the revaluation by exchequer funding the scheme and abolishing downward caps.” Sue noted: “This will be crucial in supporting businesses as they weather the cost-of-living crisis and their long-term recovery from COVID-19.”

She concluded: “As a whole, the Autumn budget promises growth and investment that the UK so desperately needs. Whilst there are positive notions in areas such as business rates and infrastructure investment, the removal of tax exemption for EV owners could set back the objective of electrification and increasing the number of electric vehicles sold in the UK, in a bid to reach the ever-challenging 2030 targets.”

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