Sooner or later, it is going to dawn on the owners of electric cars that they have been enjoying one of the longest introductory free offers in history. The moment of realisation may even come tomorrow. That is when, for the first time, electric cars (EVs) are going to become liable to pay road tax. It won’t necessarily be too onerous. Drive an EV out of a showroom tomorrow and you will pay just £10 in car tax for the first year, rising to £195 for your second year of ownership and beyond. Owners of vehicles registered between 1 April 2017 and today will pay £195 a year. Those registered between 2001 and 2017 will be liable for £20 a year road tax.
Driving an electric car is about to get a lot more expensive
But the nasty sting will come in a year’s time. EVs, for the first time, will be liable for the Expensive Car Supplement which imposes a levy of £425 a year between the second and fifth years of a car’s existence – on any vehicle whose original list price was over £40,000. Given that EVs cost substantially more than their petrol and electric equivalents, with around two thirds costing more than £40,000 new, there are going to be some very unhappy EV buyers around.
It may seem an odd way to behave for a government which is desperately trying to persuade us to buy electric cars. It is also certainly not going to help manufacturers fulfil their obligations under the Zero Emission Vehicle mandate, which demands that 28 per cent of the cars they sell this year are pure electric. But this is going to be just the beginning. In a few years’ time, there aren’t going to be many smug electric car owners still bragging about saving money.
Even after this week’s changes, electric car owners are still going to enjoy a tax system that is heavily weighted in their favour. But it isn’t going to last. Fill the tank of a petrol and diesel car and around half what you pay at the pump goes towards fuel duty and VAT. Charge your electric car on your driveway, on the other hand, and all you pay is 5 per cent VAT on the electricity. Electricity from public chargers is liable for the 20 per cent standard rate of VAT, which aggrieves many drivers, but still there is nothing equivalent to fuel duty.
EV owners might well argue that they deserve special treatment because they are helping the government get a little closer to net zero carbon emissions (although only a little closer because the manufacture of their vehicles involves higher emissions than for petrol and diesel vehicles), but that rather misses the point. This financial year the government has raised over £24 billion in fuel duty, and, with the public finances in desperate straits, it is hardly going to let that go. Sooner or later – and most probably sooner– either Rachel Reeves or her successor is going to have to stand up in the Commons and announce some other way of taxing EVs to ensure that the revenue stream from fuel duty does not dry up.
The most obvious solution will be road-pricing – a per-mile charge for driving on the roads, either taken from a once-a-year reading of a car’s odometer or through some kind of monitoring via GPS devices or number plate-recognition cameras. It won’t be popular – the last Labour government pulled sharply back against a proposal to introduce road pricing. But it could, if properly handled, be the fairest way to charge for using the roads. The cost of driving could be varied according to the type of road, with urban roads charged at several times the rate of remote rural roads, where locals have few choices other than to drive. Better still, a unified national road charging system, which sends everyone a monthly bill, could replace all the road tolls, congestion charges and objectionable charging systems which send people a stiff fine if they fail to access some app, or pay online, with 48 hours.
We can all argue about the pros and cons of road charging, but one thing is for sure: driving an electric car is about to get a lot more expensive. Anyone who ever thought they would enjoy subsidies and tax advantages forever has been deluding themselves.
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