22.3.2012 Budget 2012 may prove fatal for EV market

Changes to company car taxation announced in Budget 2012 present a serious challenge to the UK electric vehicle (EV) market.

With fleet purchases accounting for the vast majority of the UK's first 1,000 electric car and van sales, business and company car taxation are playing a crucial role in supporting the emerging EV market.

It comes as some surprise therefore that the Chancellor has chosen not to extend the five-year tax exemption for zero carbon and ultra low carbon emission vehicles as originally legislated in Finance Act 2010. Instead, Budget 2012 confirms that, from April 2015, the company car tax BIK rates for zero emission and ultra low carbon vehicles will be set at 13%.

At a stroke, this will remove one of the key fiscal drivers of the new market for plug-in electric vehicles as, from 2015, BIK rates for EVs will be exactly the same as for some petrol cars. To make matters worse, in 2016 the Government intends to remove the 3% diesel supplement. With comparable BIK rates, EVs sales will be unable to compete with lower priced fuel-efficient diesel models.

According to Dr Ben Lane, Managing Editor of Next Green Car: "Even including Plug-in Car and Van Grants, research clearly demonstrates that electric vehicles are more costly to own on a whole life basis. Providing support using graduated Vehicle Excise Duty and company car tax is therefore vital to ensure new technologies get a foothold in the market.

"While fiscal incentives should be time-limited, 2015 is far too early to expect EVs to compete with much lower priced petrol-hybrids and clean diesels. With battery and plug-in hybrid development still ongoing, and sales volumes still low, the playing field isn't yet level enough for a fair fight. If this goes ahead, the EV market will be killed off before it’s even started."

Next Green Car is therefore calling for a review of the planned changes to company car taxation with the objective of extending the tax exemption for zero carbon and ultra low carbon emission vehicles until 2020 at the earliest.