UK Government pulls the plug on electric car subsidies

15 June 2022

With inflation running rampant across the world, with the costs of living going through the roof for everybody out there, the UK government is clearly struggling to balance its books and is reaching out for desperate measures. With people being unable to fill up their cars with fuel, significantly less tax is being collected - UK car owners pay 52.95 pence in fuel duty per one liter and then 20% VAT on top of that (compare that to the US charging only 4.9 cents per liter). When people cannot afford to fuel up their cars - the government doesn’t get paid.

Fuel duty in the UK represents a significant income for the government, as much as 1% of national income (or 930GBP per household) is paid to the coffers every year just in fuel duty. The expectation was for this year to collect as much as GBP26.2 billion but that plan is in tatters with the outlook closer to 2020-21 levels of just over GBP20 billion.

The UK offered affordable electric car buyer a grant of GBP1,500 whether it was a pure electric car or a plug-in hybrid. So far nearly half a million car owners took advantage of the scheme at a cost of GBP1.4 billion. With electric cars now representing 1 in 6 of all new vehicles registered and with the sales growing by 70% compared to a year before, it doesn't take much work to realize the government was losing money. It became a victim of its own policy and with UK political life being currently turbulent it needed a quick solution to prop the budget.

As usual it’s a very short sighted approach. The UK government pulled the rug from under many people who were planning to buy an electric car this year and in exchange promised to invest as much as GBP1.6 billion into the electric car infrastructure such as charging points including GBP300 million directed towards grants to buy electric taxis, motorbikes, vans, trucks and wheelchair accessible cars. That’s just another spin because the previous grants were available for all those vehicle categories. Political language can be confusing, it all sounds wonderful on the surface but nothing really changes.

The UK government is just making sure it gets away with stomping up more money before the EV sales go up even higher. It’s easier to promise grants for infrastructure and then have private companies to step in and develop it, the grants will be paid later on project completion and they will be staggered over time. Grants for business users won’t be direct payments - they will come in the form of tax offsets. Paying grants to individuals meant actually paying the money directly and clearly that has become a problem.

It’s a bad signal for EV owners and it’s a bad decision for the country. With ambitious goals to cut emissions, with electric cars only getting more and more expensive this will slow the progress down. It doesn’t sound like a lot of money but it’s enough to stop people from making the decision to buy an electric car. The UK has always been one of the most expensive countries to own a vehicle and it’s looking to stay that way or even get a bit worse.

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