As expected, the 2025 Budget will have a wide-ranging impact on businesses and individuals all over the UK. One area where the Government is to implement significant changes, is the electric vehicle (EV) sector. From April 2028, notable changes will take place, affecting both car owners, prospective customers, and retailers.
What are the changes?
From April 2028, a charge will be levied against all electric vehicles on a per-mile basis. For fully electric vehicles, the charge will be 3p per mile, whilst plug-in hybrid vehicles will incur the charge at a rate of 1.5p per mile.
The Electric Car Grant is to remain in place, with the Government increasing funding by circa £1.3 billion and extending the scheme to 2029-30. The scheme offers a maximum discount of £3,750 on vehicles which meet certain criteria.
The Expensive Car Supplement (ECS) threshold will increase from £40,000 to £50,000. At present, an electric vehicle costing in excess of £40,000 incurs an additional tax charge of £425 per year (rising to £440 from 2026).
What is the impact on Consumers?
For electric vehicle drivers and prospective customers, the new measures could be described as a ‘mixed bag’. The headline piece, being the per-mile charge, has received the most polarised response. While the Government intends to make up a shortfall in fuel duty, as more and more consumers switch to EVs, electric vehicle drivers may view this as a removal of a perk of ownership. Regardless of which side of the fence you fall on, the optics of levying a charge on an eco-conscious action could be viewed as negative.
How much will the electric vehicle levy cost the average EV owner?
Taking an estimated average annual mileage of 8,500, the additional cost would be in the range of £127.50 - £255, depending on the vehicle in question. The implementation and enforcement of the measure remains in a consultation process for the time being, and what impact the charge will have on consumer appetite remains to be seen.
On a more positive note, the ECS threshold uplift should have a positive impact for the consumer. As a general rule, electric vehicles are more expensive than their petrol and diesel counterparts. As such, it was possible to approach or cross the threshold with ‘entry level’ electric vehicles for many brands. Increasing the threshold brings it more in line with the realities of the market.
Similarly, the extension of the electric car grant maintains the opportunity to obtain a notable discount on new electric vehicles. At present, only four vehicles can obtain the full grant of £3,750, whilst the remainder receive a £1,500 discount. The uptake of the scheme is likely to depend on the variety of eligible vehicles, particularly in the higher band.
What is the impact on retailers?
For retailers, the electric vehicle market has proven a tumultuous ride over the past couple of years. The peaks, aided by significant franchise incentives and favourable company car schemes, provided a significant boost to the industry. In more recent times, despite a continual increase in the customer base, the intense depreciation rates incurred by new electric vehicles and their high costs have resulted in some dealerships incurring notable losses on their electric vehicle stock. For many customers, the question became why buy a new vehicle, when the same car, at a mere 6 months old, can be obtained at a significant discount?
As with the impact on consumers, the Budget measures are likely to yield mixed results. The extension of the ECS supplement has the potential to mitigate high prices in the market, which could increase customer appetite for new vehicles. This could have the knock-on effect of aiding dealerships in meeting their incentive targets and improving new vehicle stock turnover rates.
In a similar vein, the increased funding for the electric car grant, whilst unlikely to make or break a potential sale, offers additional incentives for customers and could reap similar rewards for retailers.
The future of electric vehicles?
Regardless of the aforementioned developments in the sector, the market for electric vehicles is expected to continue to grow. The crucial limiting factor at present is the infrastructure, and whilst this is continually improving and expanding, until the network evolves into an efficient and nationwide offering, there will remain an element of doubt. This is a nigh on certainty to occur, but at what rate? On balance, the need to recoup lost duty revenues from the increasing adoption of electric vehicles was always likely to become a consideration at some point in time. Whether that step has been taken too early, before the market has sufficiently matured, remains to be seen.
To discuss how these changes could impact your business, please get in touch. Call 0808 144 5575 or email help@armstrongwatson.co.uk.
