Government rules out return of grants for electric cars

Response to House of Lords report disagrees with incentives including discounts on cars and VAT on charging

The UK government has rejected calls from the automotive industry to reintroduce the electric car grant as a means of boosting EV uptake.

Responding to a plethora of recommendations outlined in the House of Lords Environment and Climate Change Committee’s Electric Vehicles report, the government detailed its stance on a wide variety of concerns and ideas relating to the electrification of the UK vehicle parc.

Most pertinent among its responses is a refusal to bring back the plug-in car grant (PiCG), which was launched in 2011 as a means of accelerating EV adoption by subsidising their purchase costs, and was phased out in 2022.

Initially, the PiCG offered up to £5000 off the purchase of all plug-in cars, but was downgraded on several occasions over the following decade and by its cancellation only contributed as much as £1500 to the purchase of a pure-EV - and then only the most affordable models on sale.

Calls to reintroduce it have grown in volume in recent months, in light of the government’s ambitious target to ban new combustion car sales in 2035 and the ZEV mandate, which obliges car manufacturers to sell a certain percentage of electric cars in the UK per year, starting at 22% in 2024 and rising to 80% in 2030.

Electric car demand, however, is faltering, and several voices from across the industry have claimed that subsidies are essential to boosting demand to a level that is sufficient to meet those objectives.

Fiat UK boss Damien Dally recently said it was “hugely disappointing” that chancellor Jeremy Hunt did not bring back the grant as part of his spring budget, because “the government has set the direction of travel by enforcing the zero-emission vehicle mandate and ne-zero target but is doing nothing to incentivise retail customers to drive electric vehicles”.

He added: “The demand for electric vehicles is waning and we're sleepwalking into an electric vehicle crisis. The government is also potentially putting its net-zero target at risk.

“Without any government financial incentive, there’s no reason for the consumer to make the switch.”

He was echoed by SMMT CEO Mike Hawes, who said the "government has been keen to assure the UK automotive industry's competitiveness" but "there is little to help consumer demand".

Hawes suggested that reducing VAT on new EVs and adjusting taxation rates would also have been welcome measures.

More recently, Volkswagen Group UK MD Alex Smith said grants would be an "eminently sensible" means of signalling "that this is the direction of travel".

“We would be absolutely in favour of well-targeted, specific and realistic incentives to signal that decarbonisation of road transportation is the aim and that battery-electric vehicles are a very, very significant tool in achieving that."

And in the Electric Vehicles report, the Environment and Climate Change Committee suggests "the Government should explore targeted grants to incentivise the purchase of EVs with a view of facilitating a list price under an appropriate threshold".

It says this would "stimulate the affordable market", while facilitating a shift towards EVs achieving price parity with combustion cars and "help counteract the trend towards SUVs which have broader environmental costs".

The Committee said there should still be "an exit strategy" in place for the grant's eventual withdrawal, but this should only be considered once price parity is achieved.

In response, the government said: "Government grants have been in place for over a decade to help reduce the up-front purchase price of new EVs. All Government grants are kept under review to ensure the best value for money for the taxpayer. The Plug-in Car Grant was closed to new orders on 14 June 2022, having injected £1.5 billion in taxpayer funding to support the growth of the early electric car market.

"In June 2022, the Government published a public evaluation report, which highlighted that the Plug-in Car Grant was vital in building the early market for electric vehicles. It then had less of an effect on demand than other existing price incentives, such as company car tax. In 2023, battery electric vehicles (BEV) represented 16.5% of new car sales in the UK.

"The price gap for new cars has continued to decrease over the past few years. According to industry data, the purchase price premium of an EV – relative to an equivalent internal combustion engine (ICE) vehicle – has dropped from around 50% in 2020 to around 40% in 2023. With battery costs reducing and continued innovation, some external forecasts predict that some EVs could be around the same price to purchase as a petrol or diesel car by the end of the 2020s.

"The Government is targeting its incentives where they have the most impact and deliver the greatest value for money. Plug-in Grants will continue until at least financial year 2024/25 for motorcycles vans, taxis, trucks and wheelchair accessible vehicles."

The Committee's report went on to suggest that the government should also consider incentivising the purchase of second-hand EVs with a similar financial measure, but the government does not consider this to be necessary.

“Industry intelligence suggests that some EVs on the used market are now similar in price to their petrol and diesel equivalents," it said.

"The number of used EVs continues to rapidly increase. Data from the SMMT shows that, in 2023, used EV sales increased by 90.9%, increasing the pool of available vehicles. The Government chairs a working group with several stakeholders to ascertain potential barriers to the uptake of used electric vehicles. The Government will consider all policy options, to address potential failures in the market."

The government also said it will not reduce the percentage of VAT applied to public EV chargers, following calls for it to be reduced from 20% to 5%, in line with VAT charged on domestic electricity. Doing this, it said, "would impose additional pressure on the public finances to which VAT makes a significant contribution".

And the government said it will not introduce ‘totem signs’ outside motorway service stations to show the real-time price of charging an EV there, as is the case with traditional petrol stations. It said a push to improve real-time charger information accessibility using maps and apps will provide the same function.