Hunt to impose UK highway tax on electrical vehicles for first time

Electrical vehicles are to be topic to automobile excise responsibility for the primary time below measures to be launched by Jeremy Hunt, the UK chancellor, on this month’s Autumn Assertion.

Individuals briefed on Hunt’s plans mentioned that making use of highway tax to electrical automobiles was the primary signal of a chancellor “dipping a toe within the water” to handle the autumn in motoring tax revenues brought on by the transition to battery-powered automobiles, as their house owners additionally keep away from paying gas responsibility.

Final 12 months the Treasury warned that “new sources of income” could be wanted because the nation switches to EVs. Gas responsibility and VED increase about £35bn for the exchequer however the Workplace for Price range Duty has forecast that the rising share of electrical automotive gross sales would lower motoring tax revenues by £2.1bn by 2026-27.

The introduction of excise responsibility, or VED, to electrical vehicles might take impact from 2025-26, based on officers briefed on the plan, though the Treasury declined to touch upon “hypothesis” forward of the November 17 fiscal assertion.

There are greater than 1mn electrical automobiles on UK roads, with annual gross sales rising exponentially. Round 15 per cent of the brand new automobiles offered up to now this 12 months run on batteries, based on the SMMT business physique. Present gross sales progress means there are more likely to be a number of million battery vehicles on the highway by the center of the last decade.

Homeowners of most petrol and diesel vehicles pay £165 a 12 months in highway tax and persevering with the VED exemption for the rising fleet of electrical automobiles might value the exchequer round £1bn a 12 months by the center of the last decade.

Though the sums concerned aren’t big at this stage, the introduction of highway tax on EVs is seen by Treasury insiders as proof of a “route of journey”, with extra taxes more likely to be levied on them in years to come back.

A Treasury overview in October 2021 warned that reaching the UK’s 2050 web zero carbon goal would result in receipts drying up from 5 taxes: gas responsibility, automobile excise responsibility, landfill tax, the carbon value flooring and the emissions buying and selling scheme.

It mentioned the transition to electrical automobiles would create a short lived tax vacuum equal to 1.5 per cent of gross home product by the 2040s that might solely be partially changed by carbon taxes. The choice to new taxes was extra state borrowing, which might not be accountable, it concluded.

Earlier this 12 months the OBR additionally famous that the exchequer confronted looming challenges from the expansion in electrical automotive gross sales, because it forecast they’d attain 59 per cent of whole gross sales by 2027, up from 11.6 per cent final 12 months.

Whereas electrical vehicles at the moment stay dearer to purchase outright, their decrease working prices, which embody financial savings on working and servicing prices, in addition to zero VED, assist motorists to bridge the worth hole with petrol and diesel fashions.

Ministers have offered an array of economic incentives to encourage drivers to purchase electrical vehicles, starting from buy reductions and automobile tax breaks, to beneficiant remedy below firm automotive schemes.

However as gross sales have taken off, incentives have been slowly unwound to stop a drain on the general public purse. Buy grants that have been as soon as £5,000 have been whittled all the way down to £1,500, and can disappear fully subsequent spring.

Trade figures mentioned the corporate automotive tax profit remained the only largest incentive to consumers who’re in a position to make use of such schemes, and that slicing these would have a a lot bigger impression than making use of VED. However they conceded that sustaining tax breaks for electrical automobile drivers would turn into more and more unfair as they turn into extra commonplace.

The worth of electrical vehicles is anticipated to fall throughout this decade as battery know-how improves and mass manufacturing permits the business to chop prices.