12:24 pm, November 17, 2022
Electric vehicles will no longer be exempt from vehicle excise duty from April 2025, the chancellor has announced.
As part of his much-anticipated Autumn Statement, Jeremy Hunt said the change would make the UK’s motoring tax system ‘fairer’.
Addressing the House of Commons today (Nov 17), Hunt told MPs: ‘Because the OBR (Office for Budget Responsibility) forecast half of all new vehicles will be electric by 2025, to make our motoring tax system fairer I’ve decided that from then, electric vehicles will no longer be exempt from vehicle excise duty.
‘Company car tax rates will remain lower for electric vehicles.
‘I’ve listened to industry bodies and will limit rate increases to one percentage point a year for three years from 2025.’
VED is a tax levied on every vehicle on UK roads.
The first-year rate for new vehicles varies according to their carbon emissions, currently ranging from zero for the cleanest models to as much as £2,000 for the most polluting.
A flat rate of £140 applies for subsequent years, except for zero-emission vehicles which have no charge.
The news has been roundly criticised by automotive bodies, though, which have described the decision as ‘unhelpful’.
Ian Plummer, Auto Trader commercial director, said: ‘The chancellor is clearly looking for revenues, but the prospect of increased running costs will drive more would-be buyers away from EVs when other incentives are being scrapped and high energy bills are eroding the advantages of going electric.
‘The 2030 ban on new diesel and petrol sales is looming ahead but measures like this will hardly encourage motorists to switch amid a cost-of-living crisis.
‘An excise duty raid is short-sighted and sends the wrong message if we’re to be serious about getting EVs into the mainstream and beyond the wealthier car buyers who can afford the c.35 per cent “green premium” of EVs over petrol or diesel equivalents.’
Since the inception of electric vehicles, they have been exempt from annual road tax as the government helped to incentivise electric cars.
However, with an increasing number of drivers choosing EVs – 14.6 per cent of all new cars registered in 2022 up until the end of October were electric – the government is under increasing pressure to help fill the financial gap left by their road tax exemption.
Prior to the announcement, Carwow slammed the idea of scrapping the exemption and called on the government to be ‘bold, brave and honest’.
Ashley Barnett, head of fleet consultancy at Lex Autolease, added: ‘The electric vehicle market has grown exponentially in recent years, creating a shortfall in motoring tax revenue.
‘However, when coupled with rising vehicle and electricity prices, we must remain cautious of introducing further barriers to adoption.
‘The introduction of VED on EVs won’t immediately stall future uptake, but it does highlight the need for a more coherent and joined-up conversation between government departments and industry bodies to simplify what is becoming an overly complicated vehicle taxation system.
‘Vehicle excise duty must operate in a fair, emissions-based way if we are going to continue to clean up the older and more polluting vehicles on the UK’s roads.’
High-earning dealer bosses to pay more tax
During a statement which painted a bleak picture of the nation’s finances, Hunt also reduced the threshold at which the top rate of income tax is paid.
The decision means that car dealers earning more than £125,140 a year will now pay the 45p tax rate, as opposed to £150,000 previously.
As a result of the move, workers earning £150,000 or more will pay just over £1,200 extra a year, Hunt told MPs.
On business taxes, Hunt announced a freeze to the Employers NICs threshold until April 2028. He added that 40 per cent of firms would be no NICs at all.
He said: ‘While I have decided to freeze the Employers NICs threshold until April 2028, we will retain the Employment Allowance at its new, higher level of £5,000.
‘Forty per cent of all businesses will still pay no NICs at all.
‘The VAT registration threshold is already more than twice as high as the EU and OECD averages. I will maintain it at that level until March 2026.’
Businesses are struggling with prices rising and growing uncertainty.
This is why the government is providing a £13.6bn package of business rates support, to help businesses through these tough times. #AutumnStatement pic.twitter.com/zuxalJ7RgF
— HM Treasury (@hmtreasury) November 17, 2022
The chancellor also admitted, for the first time, that the UK is now in recession, blaming the situation on spiralling energy prices.
To address the problem, the government will increase the Energy Profits Levy – the windfall tax on energy companies – from 25 per cent to 35 per cent.
Hunt told the Commons: ‘I have no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy prices.
‘But any such tax should be temporary, not deter investment, and recognise the cyclical nature of many energy businesses.
‘Taking account of this, I have decided that from January 1 until March 2028, we will increase the Energy Profits Levy from 25 per cent to 35 per cent.’
