Industry calls for Chancellor to introduce EV tax breaks in Budget

The automotive industry is urging the Chancellor to use the upcoming Budget to introduce a tax break to encourage the sale of electric vehicles.

New research commissioned by the Society of Motor Manufacturers and Traders (SMMT) from Savanta found that rising numbers of would-be EV drivers are now likely to delay their switch to a battery electric car.

The survey found that last September’s decision to delay the UK’s end of sale of new petrol and diesel cars and vans, from 2030 to 2035, has led to almost one in four drivers (24%) delaying their plans, while one in seven (14%) say they now will not ever make the switch.

Currently sales are fuelling the EV market to fleets while the private retail market languishes.

According to SMMT figures private retail uptake has been in decline since 2022 – with these buyers now accounting for fewer than one in four new EV registrations, compared with one in three previously.

SMMT’s research shows that a VAT cut on EVs is the single most effective measure that would encourage drivers to go electric sooner.

Almost four in 10 drivers (37%) interested in going electric said a VAT cut would accelerate their plans – and even a quarter of drivers (26%) who were not interested in switching named it as the option most likely to change their mind.

Halving VAT on new EV purchases would save the average buyer around £4,000 off the upfront purchase price.

The SMMT said such a step would deliver an additional 270,000 EVs – instead of petrol or diesel – to the road over the next three years, bolstering supply to the in-demand used EV market, where uptake rose 90.9% in 2023.

It said Vehicle Excise Duty (VED) also needs an overhaul. Forthcoming changes to VED due in 2025 – will result in around seven in 10 currently sold EVs being subject to an ‘expensive car’ VED supplement from next year.9 This would mean EV purchasers would effectively be penalised a total of £1,950 for choosing to buy an electric car – a choice which new mandated EV sales targets are intended to encourage.

Mike Hawes, SMMT CEO, said, “The Budget is a crucial opportunity to re-energise the EV market, with fair tax for a fair transition.

The Chancellor must end the perverse fiscal system that discourages drivers from moving away from fossil fuels and send a clear signal that the time to go electric is now.”