Leak hints at Government rethink on EV luxury car tax
The Labour Government may be reconsidering the Expensive Car Supplement on electric vehicles, which was only introduced in April.
The so-called luxury car tax has been applied to all electric cars costing more than £40,000 since the start of April, adding thousands of pounds to ownership costs on scores of new models.
Critics have warned that the additional cost will harm efforts to boost EV uptake and a leaked letter from a senior minister suggests that the Government may be set to alter the threshold at which it is applied.
The letter, sent by Lilian Greenwood, minister for the future or roads, to an MP and seen by Autocar acknowledges the impact of the tax changes on EVs and hints that changes could be in the pipeline.
She wrote: “As announced at Autumn Budget 2024, the Government recognises the disproportionate impact of the current VED Expensive Car Supplement threshold for those purchasing zero emission cars from 1 April 2025.
“We will consider raising the threshold for zero-emission cars only at a future fiscal event to make it easier to buy electric cars.”
The Expensive Car Supplement has existed since 2017 but until April 2025, zero emissions vehicles were exempt. Under the system, cars with a list price of more than £40,000 are hit with an extra levy of £425 per year in years two to six after registration. On top of the newly applied regular VED charges, that means owners of more expensive EVs will now pay £3,110 over the first six years.
An increase in the threshold would help make EV running costs more attractive at a time when the Government is under pressure to provide some form of incentive to support its push for more drivers to go electric.
With car makers expected to sell a 28% mix of pure-electric models by the end of the year and current EV registrations accounting for 20.4% of the market, some manufacturers have slashed prices to bring their cars back under the £40,000 threshold. However car brands and industry observers argue the Government also needs to act to aid EV uptake, although registrations are rising every month.
While the letter suggests there could be good news on the horizon, its wording does leave some ambiguity. It’s not entirely clear whether there are definite plans which are being kept under wraps until the Autumn Budget, or whether the idea of changing the threshold is still under discussion and won’t be commented on until some future unspecified fiscal announcement.
