Bright Spark

The Chancellor has spoken

Owning an electric car is getting less and less financially attractive. The latest chipping away of the fiscal advantages enjoyed by electric vehicle owners comes with the decision by the chancellor, Jeremy Hunt, to end the Vehicle Excise Duty (VED) exemption for electric cars. The change, announced in the Autumn Statement in November, means that new electric vehicles registered from April 2025 will be subject to VED at a reduced rate of £10 in the first year and then at £165 per year thereafter. Electric cars costing £40,000 or more will also be subject to the Expensive Car Supplement, which adds an extra £355 to those rates, so some EV owners will be paying a hefty £520 each year.

One interesting aspect of the change is that it has quite a strong retrospective element. Electric vehicles registered before April 2017 will now face a small £20 annual VED charge instead of being VED-free, but those registered after that date will attract the full £165 rate. This is quite a contrast to the last rejig to the VED system, which took effect, probably not coincidentally, in April 2017, and most notably withdrew the VED exemption from low CO2 petrol and diesel vehicles. In that case, cars registered before the cut-off date kept their exemption in subsequent years, a wrinkle that allowed me to save hundreds of pounds in tax on a 66-plate diesel BMW 116d I used to own. This time around, there isn’t really any similar incentive to register a new electric vehicle before the rule changes.

I think, with a few reservations, that these measures can be justified. The government has pointed to an estimate from the Office of Budget Responsibility which puts the proportion of new car registrations for electric vehicles at half of the total UK market by 2025. In November 2022, pure electric vehicles were already accounting for over 20% of new registrations – more than double the share for diesels, even when mild hybrids are included. Electric is no longer, if it ever was, a fragile emerging new technology that needs to be carefully nurtured with a wide range of tax breaks if it is going to take off. It has taken off already and has now become a mainstream technology.

The reservations? One is that the news on VED comes just as some of the other cost advantages of electric are being extinguished, with surging prices for domestic electricity, and more and more new EV drivers discovering that public rapid charging isn’t really much of a bargain compared with petrol and diesel either. Another is the impact of the retrospective element. Many post-2017 electric vehicle buyers will have done their sums for switching to electric in the, I think, reasonable expectation that the VED concession was a fairly stable part of the fiscal framework. Anyone buying an electric vehicle from now onwards knows the score, of course, but someone who bought one just before the announcement will unexpectedly only enjoy the exemption for two and a half years. If I had just purchased, I would be peeved by the policy change.

Another issue is that these changes further increase the divide between private electric vehicle buyers and drivers of electric company cars in terms of fiscal perks. While measures that help all electric vehicle drivers are removed, the generous benefit-in-kind tax regime enjoyed by company car drivers who opt for electric vehicles will be only slightly modified after 2025. I’ve never really understood the reason for this distinction.

But amid all the discussion of the financial pros and cons of electric vehicles, it’s easy to lose sight of one of the main arguments for going electric which has nothing to do with the numbers – electric cars are in so many ways better than the fossil-fuelled alternatives. I was reminded of this recently when I had the chance to try out the Genesis G80 Electrified saloon. The luxury Genesis brand is, of course, part of the Hyundai and Kia corporation, so has access to some of the best technology in the business – and it shows. The G80’s levels of refinement are remarkable and it’s difficult to believe that they could be matched by any petrol or diesel, no matter how good. And electric cars are still improving rapidly. The Dutch company Lightyear has just launched a production car that has as its main selling point the fact that it can meet most of its charging needs from its built-in solar panels. Sunshine is free, so that’s a great way to offset some of that VED – if you can afford the Lightyear’s £200,000 or so up-front price, that is.

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