UK Chancellor of the Exchequer Jeremy Hunt has confirmed that electric vehicles (EV) will no longer be exempt from tax in the Autumn budget delivered in Parliament on Thursday morning, in a bid to make motoring taxation “fairer”.
Presenting his Autumn Budget in the House of Commons on November 17, which the Chancellor said was generally “asking more from those who have more”, Hunt cited forecasts from the UK Office for Budget Responsibility (OBR), which expect that half of all new vehicles will be electric by 2025.
For this, “and to make our motoring taxing system fairer, I’ve decided that from then, EVs will no longer be exempt from vehicle excise duty (VED),” he said.
Company car tax rates meanwhile, the chancellor said, will remain lower for EVs versus traditionally fuelled vehicles.
“I’ve listened to industry bodies and will limit rate increases to 1 percentage point per year for 3 years from 2025,” Hunt told Parliament.
According to the Autumn Budget documents, new zero-emission vehicles (ZEVs) registered on or after 1 April 2025 will be liable to pay the lowest first-year rate of VED (which applies to vehicles with CO2 emissions of 1 to 50g/km), which is currently £10 a year.
From the second year of registration onwards, new ZEVs will move to the standard rate, which is currently £165 a year.
Older ZEVs first registered between 1 April 2017 and 31 March 2025, the document read, will also pay the standard rate.
Last year, the UK government scrapped its plug-in car grant scheme for new EVs, as it said it was switching focus to improving the country’s charging infrastructure.
“The Expensive Car Supplement exemption for EVs is due to end in 2025,” the Autumn Budget read, adding that new ZEVs registered on or after 1 April 2025 will therefore be liable for the supplement, which currently applies to cars with a list price exceeding £40,000 for five years.
Reactions to the Autumn budget from the industry were mixed, with the AA telling Fastmarkets EnergyCensus that such tax risks slowing the UK’s switch to EVs.
“Whilst we understand that EVs will need to be taxed, we stress that the road to electrification must not be stalled by excessive taxation,” AA president Edmund King said.
“There is no doubt the introduction of vehicle excise duty on EVs and making EV company cars less attractive by increasing tax rates, will slow the road to electrification,” King said, adding that “this may delay the environmental benefits and stall the introduction of EVs onto the second-hand car market,” he said.
The UK’s largest motoring association, the RAC, meanwhile said it was “probably fair” that EV owners start contributing to the upkeep of major roads from 2025, “after many years of paying no car tax at all.”
The RAC’s head of policy Nicholas Lyes said that while “VED rates are unlikely to be a defining reason for vehicle choice… 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.”
Meanwhile, 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.”
The organization estimates that around 550,000 EVs on the road now will be affected by the tax change in 2025, in addition to those that will be newly registered between now and then.
Ahead of the Autumn Budget statement, industry groups have warned against a fuel duty rise, after the Treasury in March cut fuel duty by 5p a liter until March 2023 in order to reduce the burden of high petrol and diesel costs on motorists and freight operators, although hauliers and retailers had hoped for a bigger cut.
However, the November 17 statement refrained from amending UK fuel duty, which Brussels-based NGO Transport & Environment said “sends wrong signals” about vehicle taxation.
“Introducing a new tax on EVs, but no new levies on polluting vehicles, is just plain wrong,” Ralph Palmer, electric fleets lead at T&E said.
“Whilst EV drivers should contribute to infrastructure and maintenance through taxes, this should be accompanied by a broader shift to more effectively tax polluting cars too, particularly at the point of purchase,” Palmer said, adding that not maintaining or widening the tax differential between electric and emitting cars “is a massive own goal and risks stifling the progress the UK has made on electrification.”