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Motor Industry calls for VAT cut on electric cars and charging points to boost EV market

October 4, 2024

UK car production surged ahead in January, as revealed by the latest data from the Society of Motor Manufacturers and Traders (SMMT).

The motor industry is calling on the UK government to cut VAT on new electric vehicles (EVs) and public charging points in an effort to counter a slowdown in the EV market.

The Society of Motor Manufacturers and Traders (SMMT) has written an open letter to the Chancellor, urging for a VAT reduction on electric cars and charging infrastructure for the next three years.

The letter comes as manufacturers struggle to meet the government’s stringent zero-emission vehicle sales targets, which mandate that 22% of all new car sales and 10% of van sales must be electric this year. Despite a record 56,362 battery electric vehicle (BEV) registrations in September, BEVs account for just 17.8% of the market this year, a figure expected to rise to 18.5% by the year’s end—still shy of the government’s target.

The SMMT noted that private demand for electric vehicles is down 6.3% year-to-date, even as manufacturers have offered unprecedented discounts to drive sales. These price cuts are expected to cost the industry over £2 billion by the end of 2023. Although petrol and diesel vehicle sales continue to decline, they still represent the choice of 56.4% of buyers in September.

To stimulate EV uptake, the SMMT has called for a 50% VAT reduction on new electric vehicle purchases, a measure it estimates could cost the Treasury £7.7 billion by the end of 2026. Additionally, the industry body is advocating for VAT on public charging points to be lowered to 5%, in line with the rate applied to home charging. They have also requested that the government introduce mandatory infrastructure targets for charging points to support the growing fleet of electric vehicles on UK roads.

The SMMT has also recommended delaying the introduction of road tax for EVs, currently set to begin next year, and extending the subsidy for commercial electric vans beyond its planned end in March.

This push for VAT reductions and extended subsidies comes as the global EV market faces challenges. Manufacturers like Volvo, Ford, and Toyota have scaled back their EV ambitions, with Toyota announcing delays to US EV production and Tesla missing its quarterly delivery targets. Governments across Europe are also scaling back their support for the sector, with France cutting EV subsidies for higher-income buyers by 20%, and Germany ending its subsidy programme altogether.

While the UK has ended most grants for electric vehicle purchases, business buyers can still benefit from tax incentives for EVs used as company cars. However, industry leaders are warning that without further government intervention, the market may struggle to meet its ambitious targets for zero-emission vehicles.