Ministers Urged to Consider Raising Taxes on Petrol and Diesel Cars to Promote Electric Vehicle Adoption
An economic think tank has suggested that Ministers should contemplate raising taxes on petrol and diesel cars to reduce the “premium” associated with purchasing electric vehicles (EVs). The Resolution Foundation’s report recommends this action if concerns persist over the number of EVs being bought in the UK.
The research also calls for the British Government to eliminate “arbitrary” EV tax breaks, as these schemes tend to favor drivers on higher incomes, leading to unfairness in the system. Benefit-in-kind incentives are currently limited to individuals whose employers provide company cars, which are often higher-wage earners. Similarly, salary sacrifice is linked to an employee’s tax rate, resulting in higher earners receiving a larger incentive.
The Resolution Foundation report proposes that the withdrawal of these tax incentives should be pre-announced to stimulate demand for EVs as motorists rush to take advantage of the benefits before they expire. If concerns about EV sales persist, Ministers should consider increasing taxes on new non-electric cars to reduce the premium associated with purchasing an EV, rather than further subsidizing EVs.
The report also emphasizes the need to address the higher cost of public charging for EVs compared to charging at home. The estimated annual cost of charging an EV using kerbside chargers is approximately £425 based on average mileage. To alleviate this cost disparity, the Resolution Foundation recommends reducing VAT on public charging from 20% to 5% to align it with home charging rates. Additionally, measures to address supply issues and enhance competition in the public charging sector should be implemented.
In addition to these recommendations, the study suggests introducing discounts on train and bus fares for individuals claiming benefits or those without personal vehicles. Furthermore, the report advocates for more accurate carbon pricing for airline passengers to reflect the environmental impact of flights.
Jonathan Marshall, principal economist at the Resolution Foundation, highlights the importance of decarbonizing travel to achieve the UK’s net-zero emissions target by 2050. He emphasizes the potential annual savings of over £20 billion by the mid-2030s through transitioning to electric vehicles. Marshall asserts that policies promoting universally affordable charging for EVs, targeted public transport discounts, and comprehensive carbon pricing can facilitate a fair transition to sustainable transportation.
Steve Gooding, director of the RAC Foundation, acknowledges the role of tax incentives in promoting the transition to electric motoring, particularly among wealthier households who are early adopters of EV technology. However, he stresses the need for greater focus on enhancing the coverage, cost, and reliability of public charging infrastructure to address consumer concerns about EV adoption.
Fiona Howarth, CEO of EV leasing company Octopus Electric Vehicles, underscores the importance of making electric cars more accessible through initiatives like salary sacrifice. She notes that until electric vehicle prices achieve parity with traditional combustion engine vehicles, salary sacrifice programs can help make EVs more affordable for all consumers.
Quentin Willson, founder of pro-EV group FairCharge, warns against abolishing salary sacrifice for EVs, as lower-income drivers are beginning to recognize the financial benefits of transitioning to electric vehicles. He cautions that eliminating this incentive could hinder the adoption of EVs among a broader demographic.
While recent data from the Society of Motor Manufacturers and Traders (SMMT) indicates a faster growth in private demand for new diesel cars compared to pure battery electrics, Electric Vehicles UK argues that this data may not provide a complete picture of the EV market. Total new electric car sales, including company car registrations, were up by 24.4%, indicating a strong demand for EVs across different sectors.
In conclusion, the Resolution Foundation’s recommendations highlight the need for a comprehensive approach to promoting electric vehicle adoption while ensuring fairness and affordability for all consumers. By addressing tax incentives, charging infrastructure, and public transport accessibility, the UK can accelerate its transition to sustainable transportation and achieve its climate goals.
This article was written by Neil Lancefield, the PA transport correspondent.
