In a bold suggestion to accelerate the transition to electric vehicles (EVs), the Resolution Foundation, a respected economic think tank, has proposed that ministers consider raising taxes on petrol and diesel cars.
This initiative aims to help reduce the “premium” associated with purchasing electric vehicles, especially amid ongoing concerns about their sales.
The Foundation’s recent report highlights the need to address the current landscape of EV ownership, where higher-income individuals disproportionately benefit from existing tax breaks.
These incentives, which include benefits for company car drivers and salary sacrifice schemes, often favor those who earn more, limiting access for average motorists. As Jonathan Marshall, a principal economist at the Resolution Foundation, stated, “A fair transition is very much within our reach.”
Proposed Changes
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The report advocates for the elimination of what it describes as “arbitrary” tax breaks for EVs, suggesting that their withdrawal should be announced in advance. This would prompt consumers to act quickly, boosting EV purchases before the incentives disappear.
The report emphasizes that if sales continue to lag, ministers should look into increasing taxes on new non-electric cars rather than providing additional subsidies for electric models.
Additionally, the Foundation calls for addressing the cost disparity between public EV charging and home charging. Currently, it is estimated that charging an electric vehicle using kerbside chargers costs around £425 more annually based on average mileage.
To alleviate this financial burden, the report recommends reducing VAT on public charging from 20% to 5%, aligning it with home charging rates. It also encourages the introduction of measures to enhance competition and ease supply issues in public charging infrastructure.
Broader Recommendations
Beyond EV-related suggestions, the Resolution Foundation also advocates for broader transport reforms. These include introducing fare discounts for train and bus services for benefit claimants and ensuring that airline passengers pay fees reflective of the carbon emissions associated with their flights.
Marshall points out the urgency of decarbonizing travel, which accounts for a third of the UK’s carbon emissions. He emphasizes that achieving net zero by 2050 is essential and financially rewarding, potentially saving over £20 billion annually by the mid-2030s.
Industry Reactions
Industry experts have reacted to the report’s findings with a mix of support and caution. Steve Gooding, director of the RAC Foundation, acknowledged that while tax incentives may favor wealthier households, it is those consumers who drive the initial adoption of electric vehicles, ultimately benefiting the wider market.
Fiona Howarth, CEO of Octopus Electric Vehicles, echoed the sentiment that while consumer interest in electric cars is high, the primary barrier remains cost. She noted that electric car prices are decreasing, but until they reach parity with traditional vehicles, salary sacrifice schemes will be crucial for making EVs accessible.
Conversely, Quentin Willson, founder of the pro-EV group FairCharge, warned against abolishing salary sacrifice for electric vehicles, highlighting its importance for lower-income drivers who are beginning to understand the financial advantages of EV ownership.
Current Market Trends
Interestingly, the Society of Motor Manufacturers and Traders (SMMT) recently reported that private demand for new diesel cars is increasing faster than that for pure battery electric vehicles, with registrations of diesel cars growing by 17.1% year-on-year compared to a mere 3.6% increase for electric cars.
However, the Electric Vehicles UK group argued that this statistic misrepresents the situation, as total new electric car sales, including company cars, saw a notable increase of 24.4%.
Conclusion
As the debate continues around the best approach to support the transition to electric vehicles, the Resolution Foundation’s recommendations underscore the need for a balanced and fair strategy.
By addressing the financial challenges associated with EV ownership and ensuring that incentives are accessible to all, the UK can pave the way for a more sustainable future in transportation.
The journey toward a greener economy is complex, but with the right policy adjustments, it is within reach.
