New Report: Chancellor should axe 'EV tax penalty' in Autumn budget
Our latest report on EVs and motoring taxation, published ahead of October's budget, makes recommendations for the Chancellor
Rule out pay-per-mile road pricing, restructure road tax, cut public chargepoint VAT - and only gradually gently increase fuel duty
New AutoMotive’s report “Vehicle taxation: the next 25 years” concludes that radical tax reform is unnecessary to support the transition to cleaner transport.
The report, submitted to the Treasury as New AutoMotive’s representation to the Autumn Budget 2024, set out a comprehensive taxation strategy for EVs.
In particular it recommends that Government should rule out pay-per-mile road pricing which - based on the experience of Iceland and New Zealand - has the potential to stall EV take up in the UK. Both countries experienced a slump in EV sales after implementing the policy.
Road pricing to pay for the negative impacts of driving on society and the environment is unnecessary. This is because air pollution and greenhouse gases will quickly reduce as a result of the EV transition, whilst the impacts on road wear and congestion from vehicle use are much smaller than commonly assumed.
The Government should however look to reform road tax (vehicle excise duty) - taxing all vehicles, regardless of age, on their efficiency rather than at a flat rate, to ensure owners of less efficient vehicles pay more. This would ensure EVs pay a fair rate, with the most efficient EVs paying the least.
Under the previous administration’s plans, drivers of cleaner cars will soon be paying up to 10 times more than owners of older, more polluting petrol and diesel vehicles. For example, under the previous administration’s plans, from April 2025, an extended range Nissan Ariya, with no greenhouse gas emissions, will pay £190 or more a year from the second year, alongside a £455 fee for 5 years (an average of £329 a year). Meanwhile a pre-2017 1.6 litre diesel Nissan Qashqai will never have paid more than £35 a year, barely one–tenth of the amount.
Only modest increases in fuel duty are required to ensure that drivers of petrol and diesel vehicles continue to pay for their driving emissions. Freezing fuel duty has not significantly undermined our decarbonisation efforts to date, but a gradual real terms increase in fuel duty of 2 pence every 3 years will provide enough revenue to ensure drivers of internal combustion engine vehicles continue to pay their way.
A VAT cut on public charging is necessary and affordable, and if necessary can be paid for by gradual increases in road tax.
Ben Nelmes, CEO of New AutoMotive, said: “It’s wrong to think that the transition to cleaner transport will take the public finances over a ‘cliff edge’.
“Electric cars aren’t a sin to be taxed but a boon for the economy. Our recommendations suggest a way forward for the Chancellor that is simple and would avoid the kind of bad outcomes seen in other countries that introduce pay-per-mile charging on electric cars.
“Our recommendations would avoid the creation of an electric car tax penalty that is currently due to come into force in April 2025, and which may prevent more people from accessing the benefits of getting a used electric car. EVs can be good for motorists and the taxman - a win-win for people and the planet.”
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