Jeremy Hunt announces changes to electric vehicle tax
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Earlier this month, it was announced that sales of electric cars had surpassed those of diesel models for the first time in the UK. This was partly due to global supply chain disruption and a drop in overall car sales, as UK carmakers continue to recover from the aftermath of the pandemic.
Professor ManMohan Sodhi, Professor of Operations and Supply Chain Management at Bayes Business School at City, University of London, suggested that these trends may not hold for the long term.
He highlighted possible Government intervention in the form of taxes for EVs or slowing down the planned expansion of EV charging points.
This could potentially mean the Government pushing ahead with its plans and introducing Vehicle Excise Duty (VED) to EVs sooner than was previously anticipated.
He said: “That fact is that the Government is receiving continually reduced revenues from car sales.
“Therefore, there is a distinct possibility that they will impose taxes on electric cars and simultaneously slow down the rollout of the charging network infrastructure to collect taxes on non-electric cars.
“Both would dampen future electric car sales of either plug-in variety. But true hybrids will not be affected.
“We know that the number of new cars being purchased in the UK has been falling year on year from 2020 onwards. This may reverse in 2023 as more cars become available due to the easing of the chip shortage.”
Chancellor Jeremy Hunt unveiled plans to begin taxing electric vehicles from 2025, in a bid to boost income for the Government and prepare for the dwindling revenue from fuel duty.
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Details published by the Treasury show that electric car drivers will pay £165 per year from 2025, including any cars first registered between April 1, 2017, and March 31, 2025.
Zero and low emission cars first registered between March 1, 2001, and March 30, 2017, will pay £20 a year, while electric vans will move to the rate for petrol and diesel light goods vehicles, currently £290 a year.
Professor Sodhi says he expects the amount of people investing in either electric or hybrid models will increase, as competition leads to lower prices, although a lack of charging points may continue to be a barrier to those who are considering investing in a plug-in vehicle.
“Another trend is the move towards electric and hybrid cars, whether true hybrid or plug-in. The trend towards more electric cars will continue despite charging constraints – those who can charge their cars will buy pure electric,” he added.
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“The preference for true hybrids over plug-ins at 2:1 suggests that charging, not required for true hybrids, is a constraint for all plug-ins.
“I expect the price of electric cars to drop as technology improves and competition heats up among manufacturers. Lower prices would benefit electric car sales, particularly the pure kind.”
The Expensive Car Supplement – or the so-called “Tesla Tax” – is currently not applied to EVs but will be reimposed in 2025.
New electric cars registered after April 1, 2025, will be expected to pay the levy, which applies to cars with a list price exceeding £40,000 for five years.
It is expected that this will add an additional £355 per year to people’s car tax bill and will affect family models like the Kia Niro EV.
Petrol cars remained the most popular option for UK buyers last year, accounting for more than half of sales, but more in numbers of cars sold.
Hybrid models were 11.6 percent of the market and plug-in hybrids that can recharge were 6.3 percent.
While 2022 was the worst sales year for UK carmakers since 1992, Professor Sodhi says these percentages will change this year, although which direction they go in is another question.
He concluded: “As people in the UK will buy more cars in 2023 and 2024, it is anyone’s guess whether it will be pure electric cars or true/plug-in hybrids that will grab people’s attention as they are attracted to electric cars but have to hedge against charging constraints that will continue.”
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