‘Tesla tax’ risks putting brakes on switch to electric

Motoring groups warn drivers will be put off giving up petrol cars as rules take effect from 2025

ELECTRIC car drivers are to be hit by a “Tesla tax” to raise £3.1 billion by 2027, in a move it was claimed will threaten the shift away from petrol and diesel.

Jeremy Hunt, the Chancellor, is to charge excise duty on the vehicles for the first time as more drivers go electric and the Treasury’s ability to tax drivers is undermined.

Mr Hunt said he was aiming for a fairer system as a greater proportion of cars on Britain’s roads were now electric. By 2025, half of new cars on the road will be electric, the Office for Budget Responsibility (OBR) predicts, and Mr Hunt said such drivers needed to contribute more to the Treasury.

Buyers of battery-powered cars, which cost more initially than petrol versions but offer cheaper use per mile, had enjoyed a suite of tax incentives to entice them into the vehicles, which are now being whittled away.

New electric cars registered from April 2025 will pay the lowest rate for the first year, which is currently £10, and will in their second year move to the standard rate, which today is £165. Older electric cars will also pay this standard rate. The move is forecast to raise £515million for the Treasury in 2025, £985million in 2026 and £1.6 billion in 2027.

The AA warned that the tax increase could put off potential buyers of electric cars. The higher initial cost of an electric car compared with a petrol equivalent in an environment of increasing borrowing costs has led to concern about a slowdown in take-up.

The Chancellor will also scrap the zero tax rate enjoyed by older petrol cars with small engines registered between March 1 2001 and March 30 2017. Cars such as the Volkswagen Up! and Toyota Yaris, which produce less than 100 grams of carbon dioxide per kilometre, qualified for vehicle excise duty exemptions but will start paying from 2025.

Edmund King, president of the AA, said: “This may delay the environmental benefits and stall the introduction of EVS onto the second-hand car market.

“Unfortunately, the Chancellor’s EV taxation actions will dim the incentive to switch to electric vehicles.”

Perks such as exemption from tax were mainly taken up by the wealthy, according to Gideon Salutin, a researcher at the Social Market Foundation.

However, they could have provided useful incentives for modest earners as uptake increased, he said.

He said: “By removing the tax difference between polluting cars and electric vehicles, ministers have set back the UK’S climate goals while encouraging lower income drivers to pay for petrol vehicles that will cost more to run in the long run.” However, there are signs that buyers, spurred to do that maths on electric vehicles, had found them to be cheaper in the long term.

The difference between petrol prices – which this year hit record highs – and electricity prices, which are excluded from fuel duty and can be much cheaper at night, has won many people over.

Ginny Buckley, founder and chief executive of Electrifying.com, said: “We know that most electric car drivers were incentivised to make the switch in part by cheaper running costs. However, most wouldn’t object to paying tax, particularly if the revenue raised was put into infrastructure for charging and grid connections.”

Ms Buckley called for a simplified system based on efficiency rather than the price of an electric car. Fast-rising prices have pushed more modest models into the realm of what the Treasury considers an “expensive car”.

Models costing more than £40,000 are included and cars such as a midrange electric Kia Niro now attract £1,775 extra tax over five years.

The Government has rowed back on sweeteners for electric vehicle owners in recent years, including scrapping in June the £1,500 grant towards an electric car, a year before it was expected.

Ministers said at the time that the scheme had achieved its aim of kickstarting the EV market in the UK ahead of the ban on sales of petrol and diesel cars by 2030, and said it would now focus funding on improving charging infrastructure.

‘This may delay any of the benefits to the environment and stall EVS coming to the second-hand market ’