VAT cut on public chargers and EV grants ruled out

The Government has responded to recommendations in a House of Lords electric vehicle (EV) report, which includes a pledge to keep company car tax low.

However, it has ruled out any changes to VAT rules for EV charging and refused to introduce new incentives for the plug-in retail car market.

The House of Lords Environment and Climate Change Committee called on Government to introduce a range of measures to incentivise the switch to electric power in a report published in February.    

They included looking at targeted grants to incentivise the purchase of new EVs and exploring options to incentivise second hand electric car sales, including developing a ‘battery health standard’.

The report - 'EV strategy: rapid recharge needed’ - also called on ministers to equalise VAT for charging by reducing the 20% rate applied to public charging to 5%, in line with domestic electricity, and for Government to retain low benefit-in-kind (BIK) tax rates, while planning for how they will be tapered and exited.

In its response, published on Friday (April 19), the Government said it agreed with the report’s recommendations on BIK.

“From 2025 company car taxes for electric vehicles will increase 1% year on year to a total of 5% for battery electric vehicles by April 2028,” it said.

“By contrast the company car tax rate for petrol and diesel cars will increase by 1% in financial year 25/26 and then be maintained, with the most polluting cars subject to 37% rates by 2028.”

“The Government has committed to keeping the transition to electric vehicles affordable,” it added.  

Grants for the purchase of new EVs

The report had called for targeted grants to incentivise the purchase of EVs after the Government pulled the plug-in car grant in June 2022.    

However, defending its record on incentivising the plug-in new car market with £1.5 billion worth of grants delivered, the Government said it was now targeting its incentives where they have the “most impact and deliver the greatest value for money”.

The Government added that plug-in grants will continue until at least financial year 2024/25 for motorcycles vans, taxis, trucks and wheelchair accessible vehicles.

VAT on public charging

The VAT differential between charging an EV on the public network and charging at home has been major issue for drivers without off-road parking.

The House of Lords report called for the 20% VAT rate applied to public charging to be reduced to 5% in line with domestic electricity.

However, the Government has ruled out any change, instead defending the status quo, because it would “impose additional pressure on the public finances to which VAT makes a significant contribution”.

Baroness Parminter, who chaired the House of Lords EV inquiry, which was launched last August, said: “Whilst we welcome the Government’s acceptance of some of the recommendations in our report, it is particularly disappointing that it is not committing to incentivising the purchase of more EVs, equalizing the VAT differential between public and domestic charging, or addressing our concerns about barriers to charging in multi-occupancy buildings.

“If implemented, these recommendations would help people to adopt EVs and ensure a smoother journey towards net zero. 

“Peers will keep urging the Government to do more, as otherwise the EV revolution is a non-starter.”

There were responses from the Government to 56 recommendations in all, with it acknowledging a call for it to better communicate its commitment for the central Government car fleet to be zero emission by the end of 2027, and all cabinet members to be driven in EVs by the end of 2024.

Ministers have committed to transitioning the central government car and van fleet to zero emission vehicles by 2027.

Each Government department, it says, is responsible for delivering this target, planning how it should be approached, including considering security constraints, and prioritising budgets.

Just below a third (30%) of cars and vans in the Government Car Service fleet, which is available to cabinet members, are currently fully zero emission vehicles.

The Government said: “The percentage of zero emission vehicles in the Government Car Service continues to rise, in line with the Government fleet commitment, and well ahead of the national phase out date.”

Workplace charging

In response to concerns over the rollout of workplace charging in the report, the Government says that, over the coming year, it will assess the impact that grants have had on the market and consider if future incentives are proportionate.

The workplace charging grant currently has a funding commitment until 2025.

The report had called for the Government to gather data on the availability of workplace charge points and consult on mandating workplaces with designated car parking spaces, and more than a certain number of employees, to install charge points using the grant.

However, in response it said it had sought views on requirements for minimum levels of EV charging infrastructure in existing non-residential car parks as part of the Future of Transport Regulatory Review.

While it said that the premise of the proposed powers was popular as part of the consultation, further policy development highlighted that this approach could incur complex leasehold impacts in certain ownership and land use arrangements.

For example, sites where multiple parties share car park use, such as companies leasing office space in larger buildings. The terms of different leases mean minimum requirements would affect sites in different ways.

It says that further evidence on the impact that minimum requirement powers would have on lease agreements is therefore required.

In particular, it added: “consideration should be given to how different leasehold arrangements may affect payment and maintenance responsibilities.

“The Government is reviewing the evidence available in this area, which will support ongoing policy development.”

Incentives for used EVs and battery health

Having called for ministers to review the schemes that other countries, including Scotland and the Netherlands have implemented to incentivise the purchase of second-hand EVs, and explore whether similar schemes could be offered in England and Wales, the Government says that industry intelligence suggests some EVs on the used market are now similar in price to their petrol and diesel equivalents. 

“The number of used EVs continues to rapidly increase,” it said. “Data from the SMMT shows that, in 2023, used EV sales increased by 90.9%, increasing the pool of available vehicles.”

However, chairing a working group to ascertain potential barriers to the uptake of used EVs, it added: “The Government will consider all policy options to address potential failures in the market.”

On battery health, the report had also called on the Government to accelerate its collaboration with industry to develop a ‘battery health standard’ that is objective and reliable.

The Government says it partially agrees with this recommendation. Through the United Nations Economic Commission for Europe (UNECE), the Government has worked with industry and other governments to develop a Global Technical Regulation on EV batteries (GTR 22) that would set minimum durability and lifespan standards.

It would also make reliable and comparable battery health information accessible to a vehicle’s owner.

The Zero Emission Vehicle Mandate, which came into force in January, requires manufacturers to provide minimum warranties for EV batteries, in line with the GTR 22 durability standards.

The Government says it is currently analysing options for the implementation of the GTR 22 battery regulations in the UK.