Electric cars are to be subject to vehicle exercise duty for the first time under measures to be introduced by Jeremy Hunt, the UK Chancellor, in this month’s Autumn Statement.
The Chancellor of Exchequer has estimated that Fuel Duty and VED will raise a figure of £35bn, however The Office for Budget Responsibility has forecast that motoring tax revenues will be cut by £2.1bn by 2026-27 due to the growing share of electric car sales. The introduction of VED could take effect from 2025-26, however the Treasury turned down the opportunity to comment on “speculation” ahead of the November 17 fiscal statement.
As there are more than one million electric vehicles on UK roads, with annual sales rising exponentially, the number registered EV vehicles in the UK by the time VED launches will most likely be around several million.
A Treasury review in October 2021 justified in road tax on EVs, warning that receipts could dry up from five taxes as a result of the UK’s 2050 net zero carbon target. These five taxes included fuel duty, vehicle exercise duty, landfill tax, the carbon price floor and the emissions trading scheme.
A transition to electric vehicles could possibly create a temporary tax vacuum equivalent to 1.5 per cent of gross domestic product, by the 2040s. The only way this could be partially replaced is through the use of carbon taxes. State borrowing could act as an alternative to new taxes; however it was concluded this would not be responsible.
The Office for Budget Responsibility forecasted that electric car sales would reach 59 per cent of total sales by 2027, up from 11.6 per cent last year. This indicates a large challenge for the government to deal with, questioning how prepared they will be for the change.