Drivers will be able to claim government subsidies to cut the cost of buying a new electric car until 2030 under plans to be announced by Rachel Reeves at next week’s budget.
The chancellor will unveil an extra £1.3bn for subsidies for new electric vehicles (EVs) and a further £200m for charging points, as she attempts to prevent the market for clean cars drying up amid concerns about a new pay-per-mile tax.
Electric car experts welcomed news of the extra money, but warned the Treasury risked putting potential buyers off with its separate plans to tax them an extra 3p per mile on top of other road taxes.
A government source said: “We’re backing the switch to electric with a £1.5bn package to cut upfront costs, accelerate charge-point rollout and unlock jobs and opportunities – making it easier for people to go green and boosting growth across the country.”
Ginny Buckley, the founder of the EV reviews site electrifying.com, said: “It is good news the electric car grant is getting topped up and that the Treasury realised they had not allocated enough to it in the first place.
“Having said that, the policy around EVs is really confused. You can’t incentivise people to get EVs while also floating the idea of pay-per-mile chargers. Prospective buyers feel like they are being green-lit to buy a new car and then immediately met with a stop sign in the form of a pay-per-mile tax.”
Under the government’s electric vehicle mandate, carmakers have to make sure one in three cars sold next year are zero-emission, rising to 80% by 2030.
At the spending review earlier this year, the chancellor announced a £400m electric car grant scheme to reduce the upfront price of new EVs by up to £3,750.
That scheme has so far helped 35,000 drivers buy a new EV, and has proved so popular that it is due to run out in two years’ time.
The chancellor will use next week’s budget to top up that fund by an extra £1.3bn and extend eligibility until 2029-2030. She will allocate a further £200m for extra charging points, with many prospective owners listing range anxiety as a key reason not to buy.
At the same budget, however, Reeves is also expected to announce a consultation into a new pay-per-mile scheme, which will probably increase the average cost of owning an EV by £276 a year. Such a tax would raise about £375m for the Treasury each year based on the number of EVs now on the road.
The scheme is designed to plug the looming budget gap caused by a collapse in fuel duty as drivers move away from petrol and diesel cars, but experts say it could cause the EV market to stall.
Reeves will also announce a review into the costs of on-street charging, amid calls for the government to reduce the 20% rate of VAT which applies only to charging by the roadside.
Charging at home, by contrast, is taxed at only 5%, prompting warnings that poorer EV owners without driveways are being penalised. Reeves’s review into on-street charging will not report until next autumn.
Reeves is also under pressure from some inside and outside government to increase the level of fuel duty in part as a way to make it more attractive to buy an EV.
Rishi Sunak cut the rate of fuel duty by 5p in 2022 when he was chancellor in what was meant to be a temporary measure to deal with high oil prices caused by the Russian invasion of Ukraine.
Since then the price of crude oil has fallen by about 40% and yet the rate of fuel duty has remained the same.
