The car industry is calling on the UK government to cut VAT on new electric cars and public charging points in a bid to counter the slowdown in the electric car market.
The Society of Motor Manufacturers and Traders (SMMT) has written an open letter to the Chancellor, urging a reduction in VAT on electric vehicles and charging infrastructure over the next three years.
The letter comes as manufacturers struggle to meet the government’s tough targets for zero-emission car sales, which stipulate that 22% of all new car sales and 10% of truck sales must be electric this year. Despite 56,362 battery electric vehicles (BEV) registered in September, BEVs represent just 17.8% of the market this year, a figure that is expected to rise to 18.5% by the end of the year – still short of the target the government.
The SMMT Association noted that private demand for electric vehicles has fallen by 6.3% year to date, even as manufacturers offer unprecedented discounts to increase sales. Price cuts are expected to cost the industry more than £2 billion by the end of 2023. Although sales of petrol and diesel cars continue to decline, they were still the choice of 56.4% of buyers in September.
To stimulate the uptake of electric vehicles, the SMMT has called for a 50% VAT cut on new electric car purchases, a measure it estimates could cost the exchequer £7.7bn by the end of 2026. In addition, the industry body is calling for a VAT On general shipping, points will be reduced to 5%, in line with the price applied to home shipping. They also asked the government to introduce mandatory targets for charging point infrastructure to support the growing fleet of electric cars on UK roads.
The SMMT also recommended delaying the introduction of the road tax on electric vehicles, which is currently scheduled to start next year, and extending support for commercial electric trucks beyond its planned end in March.
This pressure to reduce value-added tax and expand subsidies comes at a time when the global electric car market is facing challenges. Manufacturers such as Volvo, Ford and Toyota have scaled back their electric vehicle ambitions, with Toyota announcing delays in US electric vehicle production and Tesla failing to meet quarterly delivery targets. Governments across Europe are also reducing their support for the sector, with France cutting electric car subsidies for high-income buyers by 20%, and Germany ending its subsidy program completely.
While the UK has ended most grants for purchasing electric cars, business buyers can still benefit from tax incentives for electric vehicles used as company cars. However, industry leaders warn that without further government intervention, the market may struggle to meet its ambitious zero-emission vehicle targets.