The government is making its own EV target impossible to hit
Omission of any EV incentives from the spring budget wasn't a surprise, but car makers have reacted furiously
As expected, there was no financial support to incentivise the uptake of electric cars in the chancellor’s budget this week. And with a general election now being tipped for as early as May, it’s extremely unlikely that any support will be forthcoming this side of autumn – if ever.
Several car makers have reacted furiously, the underlying sentiment being that EVs have been pushed to buyers at a set percentage whether they want them or not and car makers are the ones on the hook if they don’t reach that threshold.
As a reminder, the UK needs to get EVs to 22% of car sales this year but has been stalled at 16% for several months now. Private demand is particularly poor (business buyers remain incentivised through favourable company car tax rates), accounting for fewer than 20% of EV sales.
Calls for incentives have become ever louder, and rather than cash grants, as have been offered previously by the Treasury, a series of other measures have been proposed by many in the car industry.
Most prominent are the calls for halving VAT on new EV sales to 10% to mirror other green technologies in other industries looking for law-carbon solutions; and cutting VAT on public charging from 20% to 5% to match the VAT rate of domestic electricity.
Other measures proposed have been extending favourable VED rates for EVs that currently end at the end of the next financial year; longer-term commitments to low BIK tax rates to support fleet buyers in making long-term decisions; and removing insurance tax on EV policies.
Alas, chancellor Jeremy Hunt did nothing of the sort, instead opting just to continue the freeze on fuel duty. Mike Hawes, chief of the Society of Motor Manufacturers and Traders, called the budget "a missed opportunity to deliver fairer tax for a fair transition".
Fiat UK boss Damien Dally went further, saying that the lack of action meant that the government was "sleepwalking into an electric vehicle crisis”.
“Without any government financial incentive,” Dally said, “there’s no reason for the consumer to make the switch [to EVs]".
Vauxhall boss James Taylor added: “Whilst there are strong incentives for company car drivers to make the switch to electric, including for those choosing luxury vehicles, the private buyer who wants a more attainable small or family car receives nothing."
It's very hard not to have sympathy with car makers' plight, particularly when they face a £15,000 penalty for every car sold that doesn't comply with the legislation.
As Taylor noted, it's the mainstream, lower-priced models and car makers being hit most by this, as private demand simply isn't there, and why would people choose a costlier and less proven technology during a cost of living crisis?
However, one car company boss in the UK, speaking anonymously to Autocar Business, had sympathy with the Treasury’s plight in being hesitant to support the sale of new EVs, because it would be unnecessarily incentivising the 16% of buyers who would be buying an EV anyway. The trick is making sure any measures target that gap that exists between 16% and 22%.
Those who speak in favour of the VAT cut believe it to be cost-neutral to the Treasury, saying the purchase of an EV would always replace that of an ICE car, and given that the cost of an ICE car is less than that of an EV, a VAT rate of 20% on an ICE car and of 10% on an EV would balance out when the final bill comes in. This seems logical.
Perhaps the government, should it remain in power, already has its eye on softening its targets down the line should the industry fall short of them, having left it to go it alone.
A key clause in the ZEV mandate is a review in 2026, and given that most of the technicalities within it – trading, banking, borrowing and delaying details – work on a rolling three-year basis from 2024 to 2026, they can can be kicked down the road before anyone is made to pay a fine.
Still, it's a high-stakes game against the car industry for the government, which is ultimately on the hook (more so than the industry) for having a legislated target of its own to be net-zero on carbon emissions by 2050.
In the middle of all this are private car buyers, who after the budget have no more incentive to buy a new EV than before. A missed opportunity all round.