Autumn Statement: New electric vehicle tax ‘won’t dampen demand much’ because of other cost benefits – RAC

Electric vehicles are to be taxed from 2025, Chancellor Jeremy Hunt announced in the autumn statement.

He said they would no longer be exempt from vehicle excise duty (VED) from April 2025 to make the motoring tax system "fairer".

It is understood they will be liable for the lowest VED rate for the lowest-emission petrol and diesel vehicles, which is £10 for the first year for new vehicles, then £165 a year. Vehicles registered since 2017 would be affected.

Mr Hunt said: "Because the OBR [Office for Budget Responsibility] forecast 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."

Charger firm Chargepoint said not taxing electric vehicles was "not sustainable" in the long term. Picture: John Walton/PA Wire

He said company car tax rates would remain lower for EVs than traditionally-fuelled vehicles, but would increase by 1 percentage point for three years from 2025.

The RAC motoring group said it did not expect the move to do much to reduce demand for EVs because of their other cost benefits.

Head of policy 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.

"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."

But Scottish transport minister Jenny Gilruth criticised the move, saying it “appears to fly in the face of climate change ambitions”. She said: “We need more people to switch to electric vehicles – and the UK Government’s decision today to apply excise duty to electric vehicles won’t help that happen.

"The House of Commons’ recent road pricing report recognised that fuel duty and vehicle excise duty are increasingly unfit for purpose, and called for the UK Government to urgently set out options to replace both, with consultation and agreement with the devolved nations. Adding VED to electric vehicles will do nothing to help decarbonise transport or achieve our climate goals.”

John Wilmot, chief executive of car leasing comparison website LeaseLoco, said: “This is another kick in the teeth for electric car owners and sends out completely the wrong message. Plug-in grants have gone, soaring electricity prices have hiked charging costs and now EV owners will pay VED.”

Alex Kindred, of insurer Confused.com, said: “Today's news may be disheartening for some drivers as there are fewer incentives now to go green in the future. But this could also mean the demand for EVs will increase over the next year or so, which could increase the waiting list to buy a new EV.”

Tanya Sinclair, senior director, public policy – Europe, at charger firm ChargePoint, said: “We support the [UK] Government’s decision so long as VED design recognises that EVs are the cleanest vehicles on the road, and incentivises drivers to choose to drive them.

“We’re pleased to see that EVs will pay the lowest VED rates, as it is vital to reward those who purchase zero emission vehicles. EVs use the road like any other vehicle and with EV numbers rising rapidly, the era of ‘freebies for EVs’ in motor taxation has to come to an end.

“Ultimately, it’s not sustainable long term for the UK Government to have tax-free mass market adoption, and we need to have a correlating policy narrative between the phase-out of internal combustion engine vehicles and today’s VED system.”