An economic think tank, the Resolution Foundation, has recommended that the UK government consider raising taxes on petrol and diesel vehicles to enhance the appeal of electric vehicle (EV) purchases.
In a recent report, the Foundation expressed concerns about stagnant EV sales and urged ministers to take action if the trend continues.
The study suggested removing "arbitrary" tax breaks that disproportionately benefit higher-income individuals, particularly through benefit-in-kind perks available primarily to company car drivers. The report emphasized that current salary sacrifice schemes favor higher earners, thereby widening the gap in EV adoption.
To stimulate demand, the Resolution Foundation proposed that the government pre-announce the withdrawal of existing tax incentives, prompting consumers to act before these benefits expire. If sales concerns persist, the think tank urged the government to raise taxes on new non-electric vehicles, reducing the cost differential between traditional cars and EVs, rather than further subsidizing electric vehicles.
The report also highlighted the significant disparity in charging costs, noting that public charging can be up to £425 more expensive annually than home charging for average mileage. To address this, the Foundation called for a reduction in VAT on public charging from 20% to 5%, aligning it with domestic rates. They also suggested improving public charging infrastructure to enhance competition and alleviate supply issues.
The urgency for transport decarbonization is underscored by economist Jonathan Marshall, who noted that travel accounts for a third of the UK’s carbon emissions. He stated that achieving net-zero targets by 2050 necessitates rapid decarbonization of the transport sector. Marshall highlighted the potential for significant savings—over £20 billion annually by the mid-2030s—if the transition to electric vehicles is effectively managed.
However, he cautioned that without equitable policy changes, financial benefits could predominantly accrue to wealthier households. The report advocates for universally affordable charging, targeted public transport discounts, and fair carbon pricing to ensure a just transition.
Steve Gooding, director of the RAC Foundation, echoed the need for a more equitable approach to EV incentives, stating that tax perks aimed at wealthier households may hinder broader adoption. He emphasized the importance of enhancing public charging infrastructure to alleviate consumer hesitations regarding EVs.
Fiona Howarth, CEO of Octopus Electric Vehicles, noted that while consumers are eager for electric cars, financial barriers remain a significant concern. She argued for greater affordability in EV pricing to ensure that the benefits of transitioning to electric vehicles are accessible to all drivers.
Overall, the Resolution Foundation's report calls for a multifaceted approach to encourage EV adoption, highlighting the necessity of equitable policy changes, improved charging infrastructure, and a commitment to decarbonizing the transport sector.
