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Zero-emission drivers to pay more as electric vehicle VED established from 2025

Electric vehicles will have to pay vehicle excise duty (VED) from April 2025, as the Chancellor looks to make tax fairer for drivers.

Currently, EVs are exempt from paying VED, as part of plans to increase their uptake and remove more polluting models from the roads. However, as more EVs are sold, the UK government finds itself staring into a financial black hole. Fuel duty income will fall, as will VED, unless a tax is levied on zero-emission motoring. Therefore, an electric vehicle VED has been mandated, although no rates have yet been set.

The Chancellor made the announcement in the Autumn Statement, saying that with forecasts suggesting that half of all new vehicles will be electric by 2025, the move would make the motoring tax system fairer.

So far in 2022, just 14.6% of new cars registered are battery-electric vehicles, with 6.2% plug-in hybrid models. Carmakers are increasing efforts to reduce internal-combustion engine development and bring more EVs to market, however the news that they may not be as financially beneficial as before could slow the enthusiasm of some.

Unlike other countries that have pumped millions financially into electric vehicle uptake, in recent years the UK has looked to reverse course. Earlier this year it ended the Plug-in Car Grant (PiCG), having reduced the amount available to buyers over the last few years. Plug-in hybrid models have been ineligible for government support since last year, and the announcement of electric utovehicle VED shows the love-affair with zero-emission motoring is starting to wear thin.

As yet, there is no plan for how much electric vehicle VED drivers will have to pay. Currently, the scale of cost is worked out using the vehicle’s age and CO2 emissions, with a flat rate of £165. 

However, cars that cost £40,000 or more after options will cost drivers an additional £355 per year as an annual supplement for five years. This is required in the second year of the vehicle’s life. With many EVs still extremely expensive, as the technology struggles to reach price parity with petrol and diesel models, Those with a new zero-emission model, or looking to buy, could be subject to up to £520 in VED from years two to six of a car’s time on the road. 

With rising electricity rates meaning those without home charging are paying almost the same to ‘refuel’ their car as those who own a diesel, it is a blow to an automotive industry seeking to reduce emissions, especially as sales of new internal-combustion engine vehicles will be banned from 2030.

Industry reacts to electric vehicle VED

“We recognise that all vehicle owners should pay their fair share of tax, however, the measures announced today mean electric car and van buyers – and current owners – will face a significant uplift in VED,” commented Mike Hawes, SMMT Chief Executive. “The sting in the tail is the VED supplement which will unduly penalise these new, more expensive vehicle technologies. The introduction of taxes should support road transport decarbonisation, and the delivery of net-zero, rather than threaten both the new and second-hand EV markets. 

“With a ZEV mandate on the way for car and van manufacturers, we need a framework that encourages consumers and businesses to buy electric vehicles. We look forward to working with government on how to transition the market and ensure the tax framework on road users supports this objective.”

Tim Slatter, Ford UK Chairman, added: “With clear 2030 and 2035 targets, the UK is on track to be one of the leading G7 nations to transition to electric vehicles. Ford has called for the UK government to strengthen its support for the EV transition by implementing its proposed ZEV mandate in 2024, providing a clear investment signal to charging infrastructure providers to pick up the pace of roll out. With nine all-electric cars and vans in the market from 2025, Ford is all-in on the electric transition.

“Unfortunately, this announcement by the UK government to impose an electric vehicle VED from 2025 is a short-sighted move. We are still many years from the ‘tipping point’ when electric vehicles will reach cost parity with petrol and diesel vehicles. Until then, we should be incentivising customers to make the greener choice. This is particularly important for commercial vehicles, where take-up of electric models lags behind passenger cars. CVs are driving businesses forward to a greener future.  Home deliveries and other increases in urban CV traffic also make the switch to zero-emission vans important for air quality, health and noise benefits.”

Ian Plummer, Auto Trader Commercial Director, stated: “The Chancellor is clearly looking for revenues, but the prospect of increased running costs will drive more would-be buyers away from EVs when other incentives are being scrapped and high energy bills are eroding the advantages of going electric.

“The 2030 ban on new diesel and petrol sales is looming ahead but measures like this will hardly encourage motorists to switch amid a cost-of-living crisis. An excise duty raid is unhelpful and sends the wrong message if we are to be serious about getting EVs into the mainstream and beyond the wealthier car buyers who can afford the c.35% “green premium” of EVs over petrol or diesel equivalents. 

“This move will take away a big chunk of the ownership savings that are still very much needed to bridge what remains a significant purchase cost differential for EVs.”

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