Chancellor Rachel Reeves and the Labour government are facing significant criticism following a stark warning that their proposed new tax on electric vehicles could severely damage the market.
OBR Forecasts Major Drop in EV Sales
According to new reports from the independent Office for Budget Responsibility (OBR), the government's planned pay-per-mile scheme risks resulting in 440,000 fewer electric cars being sold. The policy, which would introduce a 3p per mile charge for electric cars from 2028, is designed to replace lost fuel duty revenue but has sparked a major backlash from motorists and industry figures.
A Whitehall source emphasised the challenge, stating, "The way we convince people to switch to EVs is by showing people it is easy and it is cheap." However, the current charging cost disparity is a major hurdle. Drivers with home chargers pay around 8p per kilowatt hour, while those reliant on public chargers can pay up to 54p per kWh on slower devices, creating a significant inequality.
Government Considers VAT Cut on Public Charging
In response to these concerns, Treasury officials are actively considering measures to reduce the cost of public charging. One key proposal is to cut VAT on public EV charging from the current 20% rate. This rate is four times higher than the 5% VAT applied to domestic electricity used for home charging.
An executive from the EV industry highlighted another financial burden, saying, "We're now at the point where standing charges make up more than half of the cost drivers are paying for electricity. Cutting them would bring down prices overnight."
Offsetting the Impact and Government Response
The OBR's analysis did note a partial mitigating factor. While the new tax is predicted to reduce sales by 440,000 vehicles, around 320,000 of that loss is expected to be offset by increased sales driven by other supportive measures in the Budget.
A Government spokesman defended its overall strategy this week, stating: "The Government is boosting the EV transition by saving drivers up to £3,750 off a new car, with almost 50,000 people benefitting already, and investing over £7.5billion into the UK electric vehicle sector."
The spokesman added that ministers are actively "reviewing the cost of public EV charging, which will look at the impact of energy prices, wider cost contributors and options for lowering these costs for consumers."
