Electric car owners to be hit with road tax for the first time
ELECTRIC car owners will have to pay road tax for the first time under ‘eye-watering’ Budget plans designed to fill a £54billion hole in the public finances.
Chancellor Jeremy Hunt will use Thursday’s Budget to change Treasury rules that mean emission-free cars and vans currently pay no vehicle excise duty.
The aim is to plug a projected £7billion shortfall in road tax as the switch to electric vehicles gathers pace.
But it is likely to prove controversial as it will act as a disincentive to motorists thinking of going green.
Mr Hunt warned yesterday of a ‘tough road ahead’ as official figures showed the economy shrank by 0.2 per cent in the third quarter of this year.
The Bank of England warned last week that Britain could be entering a two-year recession, the longest on record.
The Chancellor said he would work to make a possible recession ‘shallower and quicker’ in the Budget.
Treasury sources said he is expected to produce a huge package of tax rises and spending cuts in a bid to convince financial markets that the UK’s debts will begin to fall within five years. A source said the ‘ hole’ in the public finances is now estimated to be £54billion. But some Tory MPs fear raising taxes and cutting spending will hasten a recession.
Sir John Redwood said: ‘Why does the Treasury drive by looking in the rear-view mirror instead of seeing they are steering us into a downturn?’
A former Tory Cabinet minister said: ‘The Chancellor is talking about filling in a hole while he’s still digging it. The more taxes he raises, the deeper it will be.’ Mr Hunt said the looming downturn was due largely to Vladimir Putin’s ‘weaponisation’ of gas supplies during his war in Ukraine.
He added: ‘I am under no illusion that there is a tough road ahead – one which will require extremely difficult decisions to restore confidence and economic stability.
‘The best thing I can do as Chancellor is to produce a plan that brings down inflation, brings down the upward pressure on interest rates.
‘It’s not going to be easy… I’ve used the word “eye-watering” before and that’s the truth.’ The new tax on electric cars reflects Treasury concerns that the drive for net zero will rob the Government of huge tax revenues from motorists.
Electric vehicles are exempt from the annual £165 VED standard rate and the £335 ‘premium supplement’ on new cars costing £40,000 or more.
Studies suggest the Treasury could eventually lose £ 7billion in VED, and a further £27billion a year in fuel duty, unless taxes are introduced.
Next week’s package is expected to include up to £25billion in extra taxes. The Chancellor will also pencil in spending cuts totalling more than £30billion, but the bulk are likely to be postponed until after the next election.
‘There is a tough road ahead’
THE economy shrank in the last quarter by 0.2 per cent, a smaller contraction than expected. Interest rates, energy prices and inflation, are all falling. The pound is back to pre-Truss levels and the FTSE 100 has gained 500 points in a month.
As the National Institute for Economic Research said yesterday, we are not the ‘basket case’ some would have us believe.
But swingeing tax rises and spending cuts could tip us into a prolonged recession. Chancellor Jeremy Hunt take note.