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No VAT on EVs

AA calls for VAT to be scrapped on electric cars in Autumn Budget

5 July 2021

  • Two thirds say scrapping VAT most influential policy to increase EV uptake
  • Projections indicate policy would see new Battery Electric Vehicles sales overtake new combustion sales in 2025
  • Climate Change Committee calls for “strong consumer incentives” to boost EV sales
  • “Government needs to go all-in for electric vehicles” says AA president

The AA and members are calling on the Government to scrap VAT on the sale of electric cars on the Autumn Budget to help boost their uptake and help the country reach its 2050 Net Zero target.

In a recent survey by the motoring organisation, two thirds (66%1) of drivers say scrapping VAT from the purchase price would be the most influential policy to help drivers buy an EV. The policy was also the strongest amongst low income households where more than half said it was influential (59% of C2 and DE households).

Support for scrapping VAT has grown, with three fifths (61%2) of drivers advocating the incentive in 2019. Previous studies by the AA have shown that the initial purchase price of an electric car remains a significant barrier to ownership.

The top five policies which drivers felt would be most influential in helping the transition from petrol and diesel cars to electric are as follows;

  1. Remove VAT on the purchase of an EV car (including PCP deals etc) – 66%
  2. Increase the number of rapid charging connectors (80% charge within 30 minutes) from 10,400 to over 25,000 – 64%
  3. A scrappage scheme like the Government sponsored scheme in 2008 – 57%
  4. Free parking for all EVs in all council owned car parks – 49%
  5. Remove VAT on leasing costs for EVs – 47%

‘Priority recommendation’, CO2 impacts and gigafactories

The call comes as the Climate Change Committee recently warned the Government that it had not made enough progress to meet its Net Zero targets and that a comprehensive policy package to increase the uptake of EVs was a “priority recommendation”.

Further evidence which supports such a bold move comes as the Society of Motor Manufacturers and Traders (SMMT) released forecasts in June, which showed that policies such as removing VAT from new EV sales could mean EV sales overtake their combustion counterparts by as early as 2025.

However, should the Government continue with the existing policy of the Plug-in Car Grant of £2,500 for vehicles with a purchase price (including options) under £35,000 up to the 2022/23 tax year, then EVs would not outsell ICE cars until 2028.

Many drivers still feel priced out of the electric car market, so more has to be done to encourage their uptake. Scrapping VAT, as happened in Norway, is the best way to accelerate their growth and give consumers confidence
Edmund King, AA president

Such an incentive would also boost UK manufacturing and the economy. The new Nissan gigafactory due to be built in Sunderland, coupled with a cut in VAT, will help supercharge the UK automotive sector and help secure further investment in future gigafactories as well as create new high skilled jobs in; R&D, innovation, manufacturing and end of life battery recycling.

A recent report from the Department for Business, Energy & Industrial Strategy, also showed that CO2 levels attributed to transport dropped 1.8% between 2018 and 2019 across the UK. The AA estimates that a significant reduction in transport based CO2 won’t be seen for at least two decades, unless there is a significant uplift in the number of EVs on the road.

Edmund King, AA president, said; “If the Prime Minister is to meet the nation’s decarbonisation and Net Zero targets, then the Government needs to go all-in for electric vehicles.

“Many drivers still feel priced out of the electric car market, so more has to be done to encourage their uptake. Scrapping VAT, as happened in Norway, is the best way to accelerate their growth and give consumers confidence.

“As the UK’s number one motoring organisation for electric cars, we know urgent action is needed to help decarbonise the UK Car Parc. Removing VAT on EVs at the Budget will not only give the motor trade a jump start, but should help power up the electric car revolution.”

King concludes; “Giving the EV market a jump start will not just boost UK car manufacturing, but will also help reduce CO2 across the country and create new high skilled, high paid jobs in battery innovation. As the UK looks to ‘level up’, we urge the Prime Minister and the Chancellor to act positively.”

1. Yonder received 14,719 responses from AA members to its online poll between 8th – 16th June 2021. Yonder is a member of the British Polling Council and abides by its rules.

2. Populus received 17,643 responses from AA members to its online poll between 10th – 17th December 2019. Populus is a member of the British Polling Council and abides by its rules.