In the Labour Government’s first budget, Chancellor Rachel Reeves has announced two new incentives to encourage more Brits to make the switch to an electric car.
Whilst many drivers will remember the October Budget for the sharp rise in fuel duty, impacting petrol and diesel prices, and a variety of tax increases, the Government has also introduced a new measure to keep the cost of running an electric car lower than other types.
Announcing the budget in the Commons, Chancellor Rachel Reeves highlighted that the Government will extend the current company car tax rate on EVs until 2028 and make electric vehicle owners pay a different rate of tax than petrol and diesel car owners.
She explained: “I will maintain the incentives for electric vehicles in company car tax from 2028 and increase the differential between fully electric and other vehicles in the first year rates of Vehicle Excise Duty from April 2025.
“These measures will raise around £400 million by the end of the forecast period.”
Previously, the Government has imposed a number of incentives in a bid to encourage motorists to make the switch from petrol or diesel cars to fully-electric alternatives.
These have included a grant of up to £5,000 on any new electric model, which was subsequently limited to vehicles under £40,000 before being fully axed in June 2022.
However, with more electric cars on the road, the few remaining incentives are being phased out, including free road tax and a grant of up to £350 on a home charging point.
However, during the October Budget, the Chancellor confirmed that the current Benefit-in-Kind (BiK) rate, the tax company car drivers pay, will remain at two percent.
The rate was due to expire at the end of the 2024/25 tax year, expected to rise by a further percent by 2026.
Whilst Reeves has yet to confirm how much electric car owners will need to pay when their exemption ends in April 2025, she added that the amount would be different to petrol, diesel and hybrid drivers.
Whilst many motoring experts have welcomed the Chancellor’s decision, many are calling for further measures to be instated to boost EV sales.
The Society of Motor Manufacturers and Traders (SMMT) has called on the Government to make EVs worth more than £40,000 exempt from luxury car tax, meaning that owners will not need to pay an additional £410 fee for the first five years the vehicle is registered.
A number of other motoring campaign groups, including FairCharge, have also called for a reduction in VAT on public charging in a push to lower running costs for the zero-emission vehicles.
