Government fails to rule out EV tax as new regulations come into force

However, the government failed to rule out introducing a new tax as a way of replacing almost £30bn of revenue it stands to lose in fossil fuel taxes as petrol and diesel cars are replaced by electric models.

Under The Electric Vehicles (Smart Charge Points) Regulations 2021, that come into force today, all newly fitted EV charge points must have smart functionality.

This will allow for the potential of ‘electricity rationing’ by deciding when EVs can be charged, helping to avoid overloading the National Grid at peak times.

It will also enable EV charger usage to be billed at higher electricity prices than domestic electricity by operating with a dedicated smart meter.

Currently, petrol and diesel drivers pay fuel duty at 52.95 pence per litre, which brought in £28bn for the government last year. Petrol and diesel are also subject to 20 per cent VAT. By contrast, electric car users pay no fuel duty, and VAT on domestic electricity is only charged at 5 per cent.

Motor financing firm MotoNovo said the potential for higher cost EV home-charging tariffs is “sure to be another concern for consumers reeling under record utility price hikes”.

“In the short term, the government may consider that the timing for dedicated EV charging is uncomfortable, having cut fuel duty by five pence per litre recently in a bid to ease the impacts of the increasing cost of living,” said Mark Coles, head of marketing at MotoNovo.

However, he added that the “stark reality is that the revenue generated from fossil-fuel vehicles … has to be replaced somehow as EV popularity increases”.

In response, a government spokesperson said smart charging would “actually lower costs for most electric vehicle owners” as it would enable vehicle owners to access cheaper vehicle charging during periods when electricity prices are low – for example overnight. 

“This is not a tax and the new regulations will actually save people money,” they added.

At the same time, the government said it was committed to striking a difficult balance between ensuring that “motoring tax revenues keep pace with the changes brought about by the switch to electric vehicles, whilst keeping the transition affordable for consumers”. 

A day before the new regulations came into force, the government’s independent advisors, the Climate Change Committee (CCC), argued that some form of “road pricing” is needed under which drivers are charged for how much they drive if the government is to cover the “significant hole” in the public finances left by the loss of fuel duty and other taxes when petrol and diesel cars are replaced by electric models.

In its progress report to parliament, published yesterday, the CCC said a “sensible and fair” approach would see the costs covered by drivers, rather than general taxation. Potential approaches, it added, range from “a simple charge per mile driven, which could be levied based on annual odometer checks, to more sophisticated schemes that vary the charge based on the time of day or the location/type of road being used, based on vehicle-tracking technologies.”

The sale of new petrol and diesel cars is set to be banned in 2030 but the CCC said the government needed to explore the policy now so it is ready to be implemented this decade. Introducing a new tax system at an “early stage” will help avoid a situation where drivers “begin to assume that EV driving will always be tax free”, they said.