Cut VAT on electric cars by half, manufacturers say

The motor industry has urged the chancellor to cut VAT on new electric vehicles and public charging points to arrest the downturn in the electric vehicle market.
In an open letter to the chancellor, the Society of Motor Manufacturers and Traders (SMMT) said that the EV share of the market was “barely moving” and that car manufacturers were likely to miss the targets for zero-emission vehicle sales set by the government. Under the rules, electric vehicles must make up at least 22 per cent of every brand’s new car sales and 10 per cent of new van sales this year, or they must buy permits from rivals or face penalties.
Figures out on Friday will show that there were a record 56,362 battery electric vehicle (BEV) registrations in September, pushing up their share of the market since the start of the year to 17.8 per cent, with 18.5 per cent — still below the government’s mandate — forecast by the end of the year.
Yet year-to-date private BEV demand remains down by 6.3 per cent, according to the SMMT, despite what it called “unprecedented” discounting by manufacturing that was on course to cost them at least £2 billion by the end of the year. And while petrol and diesel registrations declined by 9.2 per cent and 7.1 cent respectively, together they were still the choice of 56.4 per cent of buyers in September.
In the letter, the industry body called for VAT on new EV purchases to be cut in half for the next three years, which the trade body suggested could cost the exchequer about £7.7 billion by the end of 2026.
It also said that VAT on public charging points, which are subject to the full rate of the tax, should match the lower 5 per cent figure levied on those who charge their cars at home and that the government should mandate infrastructure targets for charging points, as it does for EV sales.
The industry body said that the government should delay the imposition of road tax on EVs, set to start next year, and extend the subsidy for commercial electric vans that is due to end in March.
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The rate of sales growth in EVs has fallen in a number of markets after manufacturers overestimated demand for new electric vehicles, while cash-strapped governments have withdrawn subsidies.
The French government cut subsidies by 20 per cent for higher-income car buyers this year, while Germany abruptly ended its electric car subsidy programme last December in an effort to ease its budget crisis.
In the UK, grants to buy most electric vehicles were ended in 2022 though those buying an EV through a business as a company car can still benefit from some tax incentives.
Many of the leading car manufacturers such as Volvo, Ford and Toyota — which delayed the start of EV manufacturing in the US on Thursday — have all scaled back their EV ambitions in recent months. On Wednesday, Tesla’s quarterly figures missed Wall Street expectations, placing the leading EV maker at risk of its first fall in annual deliveries.