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Cut taxes or electric car industry will suffer, ministers warned

electric cars
electric cars

Demand for electric vehicles is suffering because of a lack of tax incentives for private buyers, carmakers have warned.

Mike Hawes, chief executive of the Society of Motoring Manufacturers (SMMT), which represents carmakers, said ministers should cut VAT on battery-powered vehicles to make them more affordable.

The 20pc tax could also be cut on public charging to bring it in line with the 5pc charged for domestic electricity, he added.

Mr Hawes said: “We believe every option needs to be considered to help the private consumer make the transition to electric cars.”

The SMMT cited a survey from Savanta, the market researcher, which found that more than two-thirds of drivers want to shift to electric but are held back by lack of incentives and worries over charging. Just 2pc plan to buy this year, while more than half will wait until 2026, the research said.


Car buying by individuals has slowed in recent months in sharp contrast to business buying which, buoyed by tax incentives, has surged.

Incentives for private buyers, meanwhile, have been peeled away. In June last year the £1,500 grant towards an electric car was scrapped, a year earlier than expected.

Mr Hawes also called for electric vehicles to be exempted from the “expensive car supplement” which will be applied to EVs from 2025. The tax, which costs £390 annually for five years after buying a car valued at £40,000 or more, will apply to around half of all EV models at current prices.

Alex Smith, chief executive of Volkswagen’s UK business, said the retail market was suffering “stagnation” when it came to electric cars.

Company car drivers pay less tax on electric cars when they are received as a perk of the job, paying as little as an 18th of the tax a petrol car driver would pay in so-called benefit in kind tax.

In the UK, easing petrol prices and stubbornly-high electricity prices have narrowed the advantage electric cars have over petrol ones in cost per mile, making their higher initial cost seem less attractive.

In the year to date, sales to private buyers have risen just 0.9pc compared to a 43pc rise for fleets.

Last month car sales to households sustained their sharpest slump in more than a year.

The number of cars sold to families and individuals dropped 8pc in August to 32,071, down from 34,891 the prior year – the biggest drop for 14 months.

Meanwhile, overall car buying surged, as businesses bought vehicles for their fleets and workers, helped out by a raft of tax incentives.

Buying an electric car is still a “sensible economic choice” for most buyers, said Mr Smith, since the cheaper cost per mile for drivers should eventually make up for the upfront cost.

He said: “Electricity is obviously far more expensive than it has been in the past.

“But if you compare the home charging cost versus petrol or diesel cost, it starts to become more compelling.”

Meanwhile, the car industry is bracing for an end-of-year deadline for post-Brexit trade rules which, unless an extension is granted, could lead to tariffs of 10pc being imposed on electric cars exported to the EU from Britain or brought to the UK from the EU.

The new rules demand that at least 45pc of a car’s value must be from the UK or EU, and because expensive battery parts often come from China, most cars will fall short.

The looming deadline means carmakers will be “erring on the side of caution” when it comes to allocating stock to the UK, said Mr Hawes.