Car makers call on Chancellor to remove VAT from electric cars

Electric cars and plug-in hybrids should be exempt from VAT to help stimulate their growth, according to the body which represents car makers in the UK.

The Society of Motor Manufacturers and Traders (SMMT) has urged the Chancellor, Rishi Sunak, to remove the tax from zero-emissions capable vehicles in his Budget next week to make them more affordable.

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It argues that by cutting VAT from pure electric vehicles (EVs), plug-in hybrids (PHEVs) and hydrogen fuel cell cars (FCEVs), the average price would immediately drop by around £5,600.

New car registrations fell by 2.9 per cent in February and while EV and PHEV registrations were both up the SMMT argues that they still represent a tiny portion of the market and more needs to be done to accelerate their uptake.

EV registrations were up 243 per cent, to 2,508, while PHEVs were up 50 per cent to 2,058. However, combined they still only account for 5.8 per cent of the market.

‘Time for a change of approach’

The SMMT’s chief executive Mike Hawes said that the Government needs to use incentives rather than punishments to encourage more drivers to switch to EVs and PHEVs.

He said: “To drive the transition to zero emission motoring, we need carrots, not sticks – as the evidence shows, talk of bans and penalties only means people hang on to their older, more polluting vehicles for longer.

“It’s time for a change of approach, which means encouraging the consumer to invest in the cleanest new car that best suits their needs. If that is to be electric, government must take bold action to make these vehicles more affordable and as convenient to recharge as their petrol and diesel equivalents are to refuel.”

Costs could fall by £10,000

The SMMT says that the upfront cost of EVs could be cut by as much as £10,000 if the Government takes “bold steps” to increase their attractiveness. It wants the plug-in car grant to be kept at its current £3,500 and to once again apply to plug-in hybrids as well as pure-electric cars. It is also calling for EVs and PHEVs to be exempt from VED (car tax) and insurance premium tax.

It claims that, based on current calculations, the removal of VAT could increase sales of EVs alone to just under one million by 2024 as the Government plans to ban all petrol and diesel cars by 2035.

But it says that any move to make EVs more accessible to more people must be matched by investment in infrastructure around the country

Mike Hawes added: “Next week’s Budget is the Chancellor’s opportunity to [show] that government is serious about delivering on its environmental ambitions. Industry has invested in the technology, with a huge influx of new zero- and ultra-low emission models coming to market in 2020, and we now need government to match this with a comprehensive package of incentives and infrastructure spending to accelerate demand.”