Jeremy Hunt is reported to be looking at applying vehicle excise duty (VED) to electric cars and vans as part of efforts to plug a £35 billion drop in vehicle-related income. He is expected to confirm the plan as part of a wider package of tax increases and spending cuts in Thursday’s Budget.
A government source told the Telegraph that it was “inevitable” that EVs would be subject to tax at some point and the Treasury was now actively considering when that should be. It is believed that Thursday’s announcement could herald the introduction of VED on electric cars by 2025.
EV owners currently pay no annual car tax and the government previously guaranteed that this would remain the position until 2025. While EVs priced over £40,000 are subject to first-year “premium tax” they are VED exempt after that while new petrol and diesel cars are subject to a £165 per year charge.
However, the soaring number of EV sales and the impending 2030 ban on new petrol and diesel vehicles leaves the Treasury facing a decline in income from VED and fuel duty. It is estimated that by 2040 this drop in revenue will cost the government £35bn, with around £7bn of that due to a loss in VED.
There are already more than one million EVs on the UK’s roads and sales of them are soaring. So far this year around one in six new car sales has been an EV and sales are up almost 50% on 2021. The Office for Budget Responsibility estimates that by 2026-27, 59% of all new car sales will be pure EVs.
The Whitehall source told the Telegraph: “Everyone knows that electric vehicles will have to be subject to road tax at some point. The Treasury is considering when that should be, while ensuring uptake isn’t disincentivised in the short-term.”
Earlier this year, the Transport Select Committee recommended the government examine introducing a road pricing policy to help address the massive loss of revenue linked to petrol and diesel cars. It suggested a pay-per-mile approach based on vehicle tracking was the only viable solution to a usage-based taxation system.