The automotive industry says the government should halve the VAT applied to electric cars to encourage “sceptics” to buy them, as only one in eight drivers intends to purchase an EV in the next three years.
Car makers are facing intense pressure to sell EVs, with government mandates requiring 28% of all the cars registered in 2025 to be zero emission, and fines of £15,000 set to be issued to manufacturers for every non-EV they sell over quota.
The Society of Motor Manufacturers and Traders (SMMT), which represents the interests of the sector, says while 87.5% of drivers don’t want to make the switch, two fifths of those would change their mind if financial incentives were offered.
The electric car market is dominated by corporate lease purchases, with 80 to 90% of all new EVs being bought by companies; many of these cars are then leased to employees via benefit-in-kind and salary-sacrifice schemes, which bring huge tax advantages. Retail consumers get no concessions at present.
The SMMT says ministers should therefore cut the rate of VAT on electric cars from 20% to 10%. It estimates this would boost sales by 15%, putting an extra two million of the vehicles on UK roads by 2028, a year in which 52% of all newly registered cars must be electric. For context, just 19.6% of new cars were EVs in 2024.
The organisation says this measure would cost the government and, by extension, the taxpayer, an average of £1,000 per car. While it recognises this “would incur a temporary cost to the Treasury”, the SMMT argues that VAT receipts from EV sales have brought in £2.5bn over the past five years.
Mike Hawes, the SMMT’s chief executive, comments: “with the right support for consumers, we can go beyond current expectations to put a total of more than two million new EVs on the road by 2028.”
He adds: “Government investment to convert the ‘electric sceptics’ would energise business across the country far beyond just the automotive sector”, arguing that increased EV uptake “would create a virtuous circle of rising demand that stimulates green economic growth”.
