In his Autumn Statement on 17th November, the chancellor Jeremy Hunt announced that electric cars will no longer be exempt from vehicle excise duty (VED) from April 2025.
VED is a tax levied on vehicles on UK roads. There are different rates depending on the vehicle, and pure-electric cars are currently exempt.
“Because the OBR (Office for Budget Responsibility) 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,” said Hunt.
Under the plans laid out in yesterday’s statement, electric cars registered from April 2025 will pay the lowest rate of £10 in the first year, then move to the standard rate, which is currently £165. The standard rate will also apply to electric vehicles first registered after April 2017.
However, drivers of traditional fossil fuel cars could see their running costs increasing much sooner, with a planned rise in fuel duty in March 2023 potentially adding 12p a litre to current petrol and diesel costs.
“We have well over half a million electric vehicles on UK roads now. We still need to encourage lots more drivers to make the switch, but electric is fast becoming the norm and introducing road tax from 2025 is an acknowledgement of that,” said Melanie Shufflebotham, COO & Co-founder, Zap-Map.
“EV drivers will still save with lower costs to run and maintain their vehicles and receive tax benefits on company cars. Not to mention the vital carbon saving and clean air benefits.”
In addition, some incentives remain for businesses to transition to cleaner vehicles: “Company car tax rates will remain lower for electric vehicles … and I will limit rate increases to 1% a year for three years from 2025,” said Hunt.
David Lewis, Head of Electric Vehicles & Energy at Select Car Leasing, described the move for EVs to pay VED as disappointing, but inevitable.
“It was always inevitable that EV owners would one day have to pay vehicle excise duty or a similar tax so this doesn’t come as a great surprise,” said Lewis.
“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, three years ahead of time, as a reaction to a challenging financial outlook.”
Initiatives such as char.gy’s Night Saver tariff help to reduce EV running costs.
However, Lewis did not expect the move to dampen demand for electric vehicles: “While that’s disappointing on the face of it,” he added, “I don’t ultimately see this as being a ‘deal-breaker’ for those looking to get behind the wheel of an EV.” It was a point with which Shufflebotham agreed.
“As the used market grows and prices for new vehicles drop, the value of switching to electric will be apparent to all drivers, whether they are paying road tax or not,” Shufflebotham concluded.