UK drivers have ‘no fiscal incentive’ to buy EVs, warn carmakers

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British car buyers have “no fiscal incentive” to buy electric cars, the UK’s auto industry has warned chancellor Rachel Reeves, as it called for tax cuts to spur the EV market and help carmakers avoid paying crippling fines.

In a letter to Reeves, Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, said that the industry was likely to miss EV sales targets introduced by the government, which would result in financial penalties for some car manufacturers and higher prices of vehicles for consumers. 

“Unfortunately, the private consumer has no fiscal incentive to switch and so our [zero emission vehicle] market looks set to miss its target,” he wrote. “The consequences of this will not just be environmental, but economic.”

Growth in electric vehicles sales has slowed in the UK and other parts of the world with consumers worried about the high price of battery-powered vehicles and the lack of charging infrastructure. To meet EV targets, carmakers are increasingly forced to raise the price of petrol cars and offer heavy discounts on electric vehicles, squeezing their margins.

Against this backdrop, the industry is asking for a halving of VAT on new purchases of electric vehicles for three years, and for the VAT on public charging to be brought down to the same level as home charging to support those who cannot charge their EVs at home. 

“With the right measures, the right consumer support and the right ecosystem, we can fix the foundations of this transition,” Hawes said.

The open letter comes as the UK government is expected to hold a consultation with carmakers this month regarding the ban on the sale of new diesel and petrol cars from 2035.

The automotive industry has been left in limbo regarding which vehicles it will be able to sell after the previous Conservative government delayed the ban from 2030 to 2035. Labour, elected to power in July, has said it wants to revert to the original 2030 target. 

At present, anyone buying an EV in the UK through a business, or a company car or salary sacrifice scheme, receives generous tax incentives. These are the segments that are driving the growth in the market, while retail demand has remained weak after grants for individuals were phased out a few years ago. 

Electric cars accounted for 17.8 per cent of new vehicles sold in the UK in 2023 and the market share is expected to reach 18.5 per cent by the year end, according to latest figures released by the SMMT on Friday — though this is below the 22 per cent required under a new sales scheme.

In September, new registrations of electric vehicles rose 25 per cent from a year ago to hit a new record, aided by heavy discounts offered by car manufacturers. But growth in consumer demand for diesel was bigger than EVs in September. 

Under rules introduced this year, 22 per cent of vehicles sold by each carmaker in the UK this year must be zero-emission, a percentage that will rise each year to 80 per cent in 2030.

Carmakers including Ford and Volkswagen are scrambling to meet the target by buying credits from another company, but they will need to pay hefty fines of £15,000 per vehicle if they fail to comply. 

Ian Plummer, commercial director at Auto Trader, warned that the discounts by car manufacturers on electric vehicles were not sustainable. “We need to see further levels of support from government if we’re to hit the new regulatory targets without inflicting significant damage to the industry,” he added.