Announcing the change as part of his Autumn Statement, Jeremy Hunt said the move was designed to make the motoring tax system “fairer”.
The RAC motoring group said it does not expect the change to dampen demand for electric cars. But others, including the AA, warned the move would reduce the incentive to switch to electric vehicles (EVs).
Mr Hunt said: “Because the OBR (Office for Budget Responsibility) forecasts half of all new vehicles will be electric by 2025, to make our motoring tax system fairer I’ve decided that from then, electric vehicles will no longer be exempt from vehicle excise duty.”
Vehicle Excise Duty (VED) is a tax levied on vehicles on UK roads. At present, electric vehicles (EVs) are exempt.
Founder of ChooseMyCar.com, Nick Zapolski, said that the new “Tesla Tax”, as he calls it, could put many people off buying an EV, and that it would spark concerns that the benefits of EV ownership will be eroded over time.
“While our research suggests people are interested in EV ownership, it’s undeniable that the high purchase price of new EVs – and the lack of second-hand ones on the market – mean it’s out of reach for many drivers. Any new tax on them will just exacerbate this situation – and could be seen as an indication that other benefits of EV ownership are under threat.
“This new “Tesla tax” means that some people will now be paying more for their road tax than someone in an old banger, which is not in line with the Government’s green credentials.
“While we appreciate that the higher amount of EV drivers means a drop in road tax revenue for the government, this seems a huge step up and is a concerning sign as to what may lay ahead.”
However, David Lewis, Head of Electric Vehicles & Energy at Select Car Leasing described the move as ‘disappointing – but inevitable’.
He added: “It was always inevitable that EV owners would one day have to pay vehicle excise duty or a similar tax so this doesn’t come as a great surprise.
“Road tax generates billions for the Treasury each year – and as more and more people move to EVs, that’s a large fiscal gap to plug. In my view EV road tax has been brought in at least two, three years ahead of time, as a reaction to a challenging financial outlook.
“And while that’s disappointing on the face of it – and an embarrassing announcement to make during COP 27 – I don’t ultimately see this as being a ‘deal-breaker’ for those looking to get behind the wheel of an EV.
“The first year VED for zero-emission cars from 2025 will be set at the lowest rate – £10 – before moving to the standard rate of £165 a year.”