New car tax rules could ‘undermine consumer confidence’ in EVs, Treasury warned
31 March 2025, 11:54
The Treasury will remove EVs’ exemption from vehicle excise duty – known as car tax – from Tuesday.
Car tax rule changes could “undermine consumer confidence” in electric vehicles (EVs) – despite them remaining cheaper to own than petrol models, according to new research.
Think tank the Energy and Climate Intelligence Unit (ECIU) said owners of the top 10 best-selling EVs will benefit from average annual savings of nearly £1,200 over the vehicle’s lifetime, mostly because running a car on electricity is generally cheaper than paying for petrol.
The analysis includes purchase and running costs.
The Treasury will remove EVs’ exemption from vehicle excise duty (VED) – known as car tax – from Tuesday.
That means all EV owners will be charged at least the standard rate, which will be £195 for the second year onward after a vehicle is registered.
New EVs worth more than £40,000 will also incur the expensive car supplement, which will be £425 annually from years two to six after a car is registered.
But the VED changes – announced in November 2022 under the Conservative government but being implemented by the Labour Government – will also see rates increasing for petrol cars, with owners of the largest and most polluting vehicles seeing a doubling of the amount they will have to pay in the first year.
Under the zero emission vehicles (Zev) mandate, a minimum proportion of new cars and vans sold by each manufacturer must be zero emission, which generally means pure electric.
ECIU head of transport Colin Walker said: “The Zev mandate policy introduced by the previous government and continued by the current one has been successful in driving competition between manufacturers up, and driving EV prices down.
“But the Government is risking complacency if it is seen to be increasing the cost of running an EV at such a critical time in the country’s EV transition.
“These new taxes could undermine consumer confidence and hold families back from making the move to electric driving, leaving them stuck paying a petrol premium to run more expensive combustion engine cars.”
The Government is analysing feedback from a recent consultation on proposed changes to the Zev mandate rules, which includes making it easier for non-compliant manufacturers to avoid fines.
Ginny Buckley, founder of EV buying advice website Electrifying.com, said the luxury car tax threshold of £40,000 – set eight years ago – is “outdated” and “unfairly penalises EVs due to their higher upfront costs”.
She went on: “Many family-sized electric cars – such as the Kia e-Niro or Volkswagen ID.3 – could be subject to a tax originally intended for luxury vehicles.
“Family drivers needing extra space, and businesses requiring longer range, could end up paying thousands more in tax over six years.
“This may discourage car buyers from making the switch to electric.”
A Treasury spokesperson said: “The shift to electric vehicles will support growth and productivity across the UK and is crucial for tackling climate change.
“Our approach ensures fiscal stability while providing incentives through the tax system such as freezing vehicle excise duty first year rates for EVs to encourage the transition to electric and zero emission vehicles.”
