Will Removal of VED Exemption Deter Drivers from Electric Vehicles?

During the Autumn Statement, Jeremy Hunt announced that beginning in 2025, electric vehicles will no longer be exempt from the Vehicle Excise Duty (VED). The VED is calculated by considering engine size, year of registration and level of CO2 emissions, and because EV’s do not produce tailpipe Co2 emissions, drivers did not have to pay VED.

(C) Michael Marais

However, from April 2025 electric cars will pay the lowest rate of £10 in the first year and then pay the yearly standard rate. The announcement is the third incentive to be pulled away from EV drivers this year. The first being the Electric Vehicle Home Charge scheme, which provided 75% contribution towards purchase and installation of home chargers, scrapped in March. The second being the plug-in car grant scheme, which previously allowed EV buyers to claim up to £1,500 on vehicle costing no more than £32,000 was axed in June. The incentives pulled away from EV drivers has brought a cause for concern as to whether this could reduce demand, and usage of EV’s on UK roads.

A report by Moneyshake found a petrol or diesel vehicle emits on average 1.4 million grams of Co2 per year, whereas hybrid or plug-in vehicles emit 200,000 grams of CO2. It isn’t just the environmental impact of these non-electric vehicles, but the impact on public health. These cars also emit nitrogen oxide, which, according to government research, in 2020 alone 33% of Nitrogen Oxides (NOX) emissions came from transport. Further studies have shown that increased exposure to NOX can cause nausea, respiratory issues and in some cases cardiovascular issues. Both the health of the public and the health of the environment need there to be an increase in electric vehicles.

Electric Vehicles have evidentially had a positive impact on the UK environment. In 2020, the government reported that domestic transport was responsible for emitting 99 MtCO2e (million tonnes of carbon dioxide equivalent). Although incredibly high, the Co2 levels were in fact a 19% reduction from 2019 and the largest fall in emissions on record. In conjunction with the fact that, in a report conducted by heycar, electric car sales increased by 186% in 2020, it is clear that electric vehicles are contributing to the reduction of carbon emissions. However, evidence suggests that incentives may still be playing a big part in increasing their popularity.

(C) John Cameron

In 2015 Denmark’s government removed tax benefits for EV’s over a five year period, from exemption to full payment in 2020. As a result of the taxes, EV sales declined in one of the most renewable energy conscious countries in the world. Bloomberg reported on the decline in demand, noting how following the tax introduction, sales dropped 60.5% in the first quarter of 2017, compared to 2016’s first quarter. In 2017, noticing that the taxes were doing more damage than good, government backtracked, and reduced taxes in a bid to increase EV usage in the country once again.

However, in comparison, the taxes introduced in the UK are predicted to have minimal impact. Fiona Howarth, CEO of Octopus Electric Vehicles, has said: ‘Tax incentives have been welcome in the early years for EVs, but with dramatically lower running and maintenance costs, being fit with the latest technology and great fun to drive – they’ve become many people’s first choice.’

Chris Evans, Head of Sales a heycar recognised that the need for incentives are not as important as they used to be, and when surveying customers, the incentives were not a factor as to why they made the move to an EV. ‘Zero VED would have been an incentive but to a small degree in comparison to the other benefits. In April, heycar surveyed 1355 drivers and asked them what the main reason was they would choose an EV.

The majority said it was because they are cheaper to fuel (52.2%), followed by the appeal of a vehicle that’s environmentally friendly with zero tailpipe emissions (34.8%). Around one in 10 (11.5%) said they want an EV because they are convenient in parts of the country with clean air zones, while 1.5% wanted an EV because they thought they looked great.’

Many have viewed the taxes as an inevitable development as EV drivers take up a much larger share of the market than they once did. In 2012 only 2,254 electric cars were registered in the UK, but in 2022, 590,000 electric cars have been registered. Therefore, removal of the VED exemption seems to be a bid to equalise the financial contribution of EV drivers with all drivers in the UK. Instead, what is most concerning is the further steps the governments have not taken in approach to the carbon emitted by the rest of the transport sector.

Electric Car Lease expressed concern about the fact that ‘combustion has not been adjusted in the same way. There are suggestions the Government should have increased VED on combustion more heavily, to keep a sizeable benefit gap between battery and combustion [vehicles].’ In the same vein, those at CoMo UK, a charity encouraging and implementing shared transport, expressed the need for prioritisation towards reducing milage as a country rather than adding more cars to the road.

(C) Florian Steciuk

Car sharing has proven to be a cost effective way to reduce carbon emissions and congestion.
From the business perspective, it is clear that the tax increase is unlikely to affect their customers. Rather it is more likely to deter the individual consumer, as buying electric doesn’t have as many cost benefits as it once had. A greater likelihood is that the taxes will not have a detrimental impact on sales, considering EV’s will still be in the lowest tax bracket. The greater reasoning for the decline in sales is most likely the cost of living, and energy crises in the UK.

Much discussion around the taxes have considered them a step in the wrong direction, in making EV’s look less appealing. However, it is likely that those who can afford the upfront cost, and the upkeep of the vehicles, will not see the VED as detrimental, as they would have already been paying it for a petrol or diesel vehicle previously. In the research above, it is evident that EV’s are likely to maintain their leasehold popularity, whether that is through company perks or ease of affordability. It does continue to be disheartening when the government removes incentives for EV’s but it can be seen as encouraging that the popularity of the vehicles has enabled them to be widely considered as an intrinsic part of the transport sector.