Electric cars to lose vehicle excise duty exemption

Electric vehicles (EVs) will no longer be exempt from vehicle excise duty (VED) from April 2025.

Chancellor Jeremy Hunt announced that he wanted to make motoring taxes “fairer” as he revealed the policy in his autumn statement.

He said: “Because the OBR (Office for Budget Responsibility) forecast half of all new vehicles will be electric by 2025, to make our motoring tax system fairer I’ve decided that from then, electric vehicles will no longer be exempt from vehicle excise duty.”

Mr Hunt said company car tax rates will remain lower for EVs than traditionally fuelled vehicles, but will increase by one percentage point for three years from 2025.

VED is a tax levied on every vehicle on UK roads.

The first-year rate for new vehicles varies according to their carbon emissions, currently ranging from zero for the cleanest models to as much as £2,000 for the most polluting.

A flat rate of £140 applies for subsequent years, except for zero-emission vehicles which have no charge.

RAC head of policy Nicholas Lyes said: “After many years of paying no car tax at all, it’s probably fair the Government gets owners of electric vehicles to start contributing to the upkeep of major roads from 2025.

“While vehicle excise duty rates are unlikely to be a defining reason for vehicle choice, we believe a first-year zero-VED rate benefit should have been retained as a partial incentive.

“But we don’t expect this tax change to have much of an effect on dampening the demand for electric vehicles given the many other cost benefits of running one.

“The fact that company car tax increases on EVs will be kept low should also keep giving fleets the confidence to go electric, which is vital for increasing the overall number of EVs on our roads.”

Ian Plummer, director of automotive classified advertising company Auto Trader, said: “The Chancellor is clearly looking for revenues, but the prospect of additional running costs will drive more would-be buyers away from EVs when other incentives are being scrapped and high energy bills are eroding the advantages of going electric.

“An excise duty raid is deeply unhelpful and sends the wrong message if we’re to be serious about getting EVs into the mainstream.

“Drivers can still save £80 every 1,000 miles by going electric, but this hike takes away a big chunk of those savings.”

Sales of new petrol and diesel cars and vans in the UK will be banned from 2030.

But latest figures from the Society of Motor Manufacturers and Traders show the rapid increase in sales of new pure electric cars has slowed in recent months.

The number of registrations during the first three months of the year was 102% more than during the same period in 2021.

At the end of October, the year-to-date increase had fallen to 38.4%.