New car tax bands rejected after drivers slam 'perverse' VED rules

New car tax rules have been rejected despite industry demands over a "perverse" system. The House of Lords Environment and Climate Change Committee had called for VED changes in its 'EV strategy: rapid recharge needed’ report published in February.

It said: “We recommend that the Government explore options for equalizing the VAT differential between public and domestic charging by reducing the 20 per cent VAT rate applied to public charging to five per cent in line with domestic electricity.”

The government said in response: "VAT is a broad-based tax on consumption and the 20% standard rate applies to mostgoods and services. Whilst there are exceptions to the standard rate, these have always been limited by both legal and fiscal considerations. In recognition of the fact that families should not have to bear all the VAT costs they- incur to meet their needs, the supply of energy for domestic use, including electricity, attracts the reduced rate of VAT (5%).

READ MORE UK braced for first 'official' heatwave of year with temperatures in 'high 20s'

"Whilst this relief was not designed or introduced for charging EVs at home, this relief applies for all uses of domestic energy. Electricity supplied at EV charging points in public places is subject to thestandard rate of VAT (20%).

"Expanding the VAT relief already available would impose additional pressure on the public finances to which VAT makes a significant contribution. Although there are no current plans to change the VAT treatment of electricity supplied at public EV charge points, the Government keeps all taxes under review."

It added: "Government grants have been in place for over a decade to help reduce the up-front purchase price of new EVs. All Government grants are kept under review to ensure the best value for money for the taxpayer.

"The Plug-in Car Grant was closed to neworders on 14 June 2022, having injected £1.5 billion in taxpayer funding to support the growth of the early electric car market. In June 2022, the Government published a public evaluation report, which highlighted that the Plug-in Car Grant was vital inbuilding the early market for electric vehicles.

"It then had less of an effect on demand than other existing price incentives, such as company car tax. In 2023, battery electric vehicles (BEV) represented 16.5% of new car sales in the UK.The price gap for new cars has continued to decrease over the past few years.

"According to industry data, the purchase price premium of an EV – relative to anequivalent internal combustion engine (ICE) vehicle – has dropped from around 50%in 2020 to around 40% in 2023. With battery costs reducing and continued innovation, some external forecasts predict that some EVs could be around the same price topurchase as a petrol or diesel car by the end of the 2020s.

"The Government is targeting its incentives where they have the most impact anddeliver the greatest value for money. Plug-in Grants will continue until at least financial year 2024/25 for motorcycles vans, taxis, trucks and wheelchair accessible vehicles."