New report: EV transition doesn’t need radical tax reform.

In a recent report by New Automotive, radical tax reform is deemed unnecessary to facilitate the country’s transition to electric vehicles. The study suggests that implementing pay-per-mile road pricing or taxing based on the environmental impact of driving may not be required as previously anticipated.

Speculation regarding the introduction of a road user pricing scheme in the Autumn Budget has been dismissed by the Government. Rumours suggested that Chancellor Rachel Reeves might consider road pricing to offset the multi-billion-pound revenue gap resulting from the transition to electric vehicles. However, Labour has clarified that there are no imminent plans for road pricing, with a commitment to supporting the automotive sector in transitioning to electric vehicles to meet climate targets.

The Department for Transport has also dispelled these rumours, aligning with the findings of the New Automotive research, which indicates that radical tax changes are unnecessary for the current parliamentary term. The independent transport research organisation warns that implementing pay-per-mile road pricing could impede the widespread adoption of electric vehicles in the UK, drawing insights from sales data in Iceland and New Zealand.

Researchers at New Automotive assert that while road tax and fuel duty require minor reforms, there is no urgent need for significant tax adjustments to facilitate the shift towards electric vehicles. The analysis also highlights that imposing road pricing to offset the negative environmental impacts of driving may not be warranted.

The report emphasises that the transition to electric vehicles will result in a rapid decrease in air pollution and greenhouse gas emissions. It also notes that the impacts of road wear and congestion caused by vehicle usage are not as substantial as commonly assumed.

However, New Automotive advocates for reform in road tax policies, suggesting the replacement of the impending increase in Vehicle Excise Duty for EVs with an efficiency-based system that applies uniformly to electric, petrol, and diesel cars regardless of age.

Under the current roadmap for road tax policy reforms, owners of cleaner vehicles could end up paying significantly more than those with older, more polluting petrol and diesel cars. New Automotive proposes adjustments to address this disparity by increasing VED for pre-2017 cars while reducing the tax burden on owners of cleaner vehicles, not limited to electric or newer models.

The report also recommends minor adjustments to fuel duty to ensure fairness in contributions from petrol and diesel vehicle owners. It argues that the current freeze on fuel duty has not impeded decarbonisation efforts significantly and suggests a gradual increase of 2ppl every three years to maintain revenue generation from internal combustion engine vehicles.

Ben Nelmes, CEO of New Automotive, stated, “Electric cars should be seen as a positive economic driver rather than a tax burden. Our proposals offer a straightforward approach for the Chancellor to avoid pitfalls experienced by other countries implementing pay-per-mile charging for electric vehicles.

“By following our recommendations, the Government can avert the electric car tax penalty slated for April 2025, ensuring broader access to the benefits of purchasing a pre-owned electric vehicle. Electric vehicles present an opportunity for motorists and tax authorities alike, creating a win-win scenario for individuals and the environment.”

For those interested in delving deeper into the findings, New Automotive’s comprehensive report titled ‘Vehicle Taxation: The Next 25 Years’ is available for download here.