Government urged to halve VAT on new electric vehicles

The auto industry is calling on the Government to slash VAT on new electric vehicles (EVs) to help stimulate greater demand, particularly in the retail market.

Modelling by the Society of Motor Manufacturers and Traders (SMMT) suggests that under current market conditions, 1.782 million new EVs will be registered between 2025 and 2027.

However, halving the amount of VAT incurred when buying a new EV would drive up demand by 15%, putting 267,000 additional plug-in cars on the road over the next two years.

This would raise registrations to 2.05 million electric vehicles.

While such a step would incur a temporary cost to the Treasury – an average of around £1,000 per car – the SMMT argues that the past five years have seen the Government accrue a £2.5 billion VAT receipt windfall as EV uptake has increased tenfold. 

The measure, when combined with flexible regulation and mandated charge point rollout, would help drive a bigger and cleaner new car market, driving down CO2 emissions by six million tonnes a year – equivalent to cutting UK aviation emissions by almost a sixth.

The SMMT argues that demand must still be lifted if the zero emission vehicle (ZEV) mandate targets are to be achieved. 

The targets, drawn up under more optimistic market conditions and when energy and raw material costs were expected to fall, are putting huge pressure on the sector with automotive manufacturers forced to underwrite the transition to the tune of £4.5bn worth of unsustainable discounting offered UK buyers last year alone, says SMMT.

Mike Hawes, SMMT chief executive, said: “Manufacturer investment has meant 10 times as many drivers are going electric compared with just five years ago. 

“This is great progress but, with the right support for consumers, we can go beyond current expectations to put a total of more than two million new EVs on the road by 2028. 

“Government investment to convert the ‘electric sceptics’ would energise business across the country far beyond just the automotive sector. 

“Every stakeholder would benefit from the impact of consumer incentives which, when combined with binding targets for charge point rollout and more flexible regulation, would create a virtuous circle of rising demand that stimulates green economic growth.”

How larger EV volumes boost business for multiple sectors

A new report from the SMMT, In It Together: Why every sector wins with EV volume, published today (Thursday, March 13), explores how larger EV volumes boost business for multiple sectors beyond automotive, and how those same sectors can play a vital role in driving up EV uptake themselves.

Growth created by a greater volume electric car market would also support the transition across all road transport, the report argues. 

Better infrastructure rollout, more cost-effective insurance and ample EV maintenance provision would help accelerate the van market’s transition – a sector which is also governed by the ZEV mandate, it says. 

A larger EV fleet overall would also lead to more investment in grid connections, supporting depot charging, which is essential to de-risking investment in zero emission HGVs. 

A new survey by SMMT, conducted by Censuswide, reveals that 23.1% of would-be new car buyers surveyed plan to get into an electric car between now and 2028 – well below the Government’s aspiration, which calls for a 28% EV market share this year alone.

Furthermore, the survey also suggests that the EV market is highly reliant on drivers who have already gone electric, comprising almost half (48.7%) of respondents – while fewer than one in eight (11.6%) new buyers polled are actively intending to switch to an EV.