The £230 million promised by the Labour government to subsidise the cost of new electric cars from the start of next year could be scrapped by the new coalition Government.

The Conservative/Lib-Dem government has ordered officials to begin reviewing all spending commitments that the previous administration made late into its final term in office.

The subsidy, which would cut up to £5,000 off the cost of a new electric car, was promised by Alastair Darling, the now shadow chancellor when he was at Number 11 over a year ago in April 2009.

However, a Treasury spokesman confirmed the subsidy is now under review because the financial commitment was contained in this April’s Budget announced by the previous Government just before the General Election

“Yes comes under the review,” he said. “Any spending commitments announced since January 1 will be reviewed and this falls into this.”

He added that the Department for Transport (DfT), which is responsible for administering the subsidy, was given just days to get all relevant documents to Treasury so it could begin reviewing it as soon as possible.

There is no official confirmation of when a decision will be made, but an announcement is expected before the Emergency Budget on June 22.

However, legal action could be taken if the subsidy is scrapped after one manufacturer said it considered its introduction a legally-binding agreement.

A spokeswoman for Nissan, which will launch its Leaf electric car onto the UK market next year to coincide with the planned introduction of the new subsidy said: "We believe we have a legally-binding agreement with the Department for Business, Innovation and Skills, and like everyone else we are awaiting the outcome of the Government's review."

A spokesman for the Society of Motor Manufacturers and Traders (SMMT) said it remains hopeful the subsidy will be saved, and its policy team will meet with DfT and the Office for Low Emission Vehicles within days to press for the subsidy to be saved.

Mitsubishi and Nissan have already published their electric car prices to include the subsidy.

The i-Miev’s price will rise to £38,699 without the subsidy, while Nissan’s Leaf will cost £28,350.

Mitsubishi said if the Government subsidy is scrapped, it will be "disappointed that this funding has been removed at such a crucial stage of establishing an early market for electric vehicles in the UK”.

The manufacturer has already launched the i-Miev and dealers have begun taking orders.  

Mitsubishi confirmed that a “number” of orders have already been taken with the £5k subsidy subtracted from the i-Miev’s price. If the subsidy is removed then it said it will be forced to allow the customer to pull out of the deal.

“If this gets pulled, which we don’t think it will, then we will give the customer the option of coming out of the deal,” confirmed a spokesman.

He said Mitsubishi has “already swallowed many of its engineering costs” but such early technology still remains expensive.

He added that should the coalition decide to scrap the incentive, it will “continue to sell the i-MiEV in the UK without the consumer incentive, but unfortunately the customer would have to pay an increased sum without the government support".

Mitsubishi is also looking at creating half a dozen “EV dealer hotspots” in the areas where there is already a lot of the existing EV charging points or where the EV recharging infrastructure is being developed.

Renault, which has yet to announce the price of its Fluence electric car, said the £5,000 incentive “is essential” for the development of an early EV market while production volumes are relatively low.

“Our vision of affordable mass-market EVs relies on the purchase incentive to bring the upfront purchase price (excluding battery lease) down to the level of an equivalent diesel car,” said a spokesman.

“In the early years, when it is expected that demand will outstrip supply, the removal of the incentive will jeopardise the UK's status as a priority market for EVs in the face other countries in Europe where there is a strong incentive programme (Republic of Ireland, the Netherlands and Portugal) and we believe that scrapping the incentive is inconsistent with the need to reduce CO2 from transport.

“We have not published definitive prices yet, but have given a clear public indication of our pricing strategy - that the net price will be the same as the equivalent diesel model. As we will not be launching until 2011 we have not asked customers to place a deposit but instead have asked them to register online in order to secure a place in the queue.”

The BVRLA, which represents the country’s leasing companies, said: “If the electric vehicle subsidy is withdrawn, we would still expect manufacturers to be as competitive as possible on pricing in order to win business in the vital fleet sector.”

And judging by comments made in exclusive interviews with Fleet News last year by the now DfT ministers Theresa Villiers and Norman Baker the subsidy’s future looks bleak.

They both said the subsidy was unlikely to survive.

“The state of the public finances means that we are facing a desperate situation,” Villiers said.

“All the commitments that this government has made will be subjected to value for money review, were we to win the general election.”

While Baker said: “The idea of having a subsidy for electric vehicles but not having one for vehicles that are very low emitting seems to be the wrong approach. I do not favour a subsidy but I do favour measures that incentivise low carbon vehicles.”

Now their comments are likely to become a reality, although Robert Evans, chief executive of Cenex – centre of excellence for low carbon and fuel cell technologies – said there is “no need for alarm bells” as the coalition is committed to reducing transport carbon emissions. But it is also committed to reducing the deficit.

Both ministers refused to comment further other than to confirm the subsidy is under review.

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