16 déc 21

UK cuts EV grants, pushing up lease rates

The UK fleet and automotive sectors have reacted with anger and dismay at the British Government’s decision to reduce its subsidies for electric cars and vans, which will increase monthly lease rates by about £70 (€82) per month.

The surprise announcement yesterday reduced grants to a maximum of £1,500 (€1,763) per car from £2,500 (€2,940), and caps the official list price of cars eligible for a grant at £32,000 (€37,600). Only 16 electric cars now qualify for the grant, and no hybrid or plug-in hybrid cars are eligible.

E-LCV grants cut

Maximum grants for electric light commercial vehicles have also been cut to £2,500 (€2,940) from £3,000 (€3530) for small vans, and to £5,000 (€5,880) from £6,000 (€7,052) for large vans. In addition, large fleet operators will be limited to 1,000 van grants per year.

The cuts in subsidies are the second reduction in a year and reflect Government efforts to share financial incentives with as many EV buyers as possible, and to refocus its subsidies on the most affordable cars.

Electric car sales soar

Electric cars have become a victim of their own success, with sales rising by 89% this year compared to 2020, to account for about 10% of the UK’s new car market. This share has risen to almost 25% in the last three months.

A statement from the Government said: “Generous tax incentives for EVs remain in place, including favourable company car tax rates, which can save drivers over £2,000 a year and we expect the total cost of EV ownership to reach parity during the 2020s compared to petrol and diesel cars.”

According to Lex Autolease, the UK’s largest leasing company, the changes to the grant will affect about 60% of electric cars. Richard Jones, Managing Director at Lex Autolease and Black Horse at Lloyds Banking Group, said the cut in grants will increase: "rentals on new orders on a 36-month agreement by around £70 [€82] a month."

Fleet uncertainty

Both the Association of Fleet Professionals and the BVRLA, which represents the UK leasing industry, criticised the suddenness of the changes, warning that uncertainty risks undermining fleet EV commitments.

“The Government should be providing as much stability as possible around its policies when it comes to EV adoption,” said the AFP. “While we understand there is not an unlimited pot of money available and grants will fall over time, the suddenness and relatively large reduction creates confusion and uncertainty at a time when businesses are taking electrification ever more seriously.”

E-LCVs still need support

Gerry Keaney, BVRLA Chief Executive, drew a distinction between the electric car market, where demand is high, and the electric van sector which is still dominated by diesel.

“There remain many barriers that are slowing down the mass transition to electric vans,” he said. “Today’s news increases those challenges and will delay the uptake of electric vans. This is particularly the case for SMEs, where the lack of price parity between ICE vehicles and electric alternatives makes it hard to create a realistic business case to make the switch. For the move towards electric vans to gain momentum, more support and incentives are essential, now is not the time to remove or reduce them.”

VAT reduction for EVs?

Paul Willcox, managing director of Vauxhall, the Stellantis manufacturer, urged the Government to look at other tax incentives, such as a reduction in VAT for EVs, to ensure the UK hits its target of banning the sale of petrol and diesel cars and vans from 2030.

“Whilst we understand the government’s desire to phase out the plug-in vehicle grant at some point, we really need to see a more strategic, longer-term approach.  A lack of clarity and certainty for customers can only harm EV adoption and leave the UK lagging behind other countries in the race to decarbonise personal transport,” he said.

Source: The International Council on Clean Transportation 

Across Europe, governments are using grants and tax subsidies to stimulate demand for EVs. The Netherlands provides a prime example of how the withdrawal of financial incentives can have a massive impact on electric vehicle demand. Sales of electric cars plummeted from 55% to 8% of registrations from December 2019 to January 2020, when taxes rose, and the same pattern repeated itself between December 2020 and January 2021, following further tax rises.

However, in KPMG’s recent Annual Global Automotive Executive Survey, 77% of automotive executives said EVs can be adopted without government subsidies, although 91% were still in favour of these programmes.

But Mike Hawes, chief executive of the SMMT, which represents vehicle manufacturers, said: “Industry and government ambition for decarbonised road transport is high, and manufacturers are delivering ever more products with ever better performance. But we need to move the market even faster – from one in a hundred cars on the road being electric, to potentially one in three in just eight years – which means we should be doubling down on incentives. Other global markets are already doing so whereas we are cutting, expecting the industry to subsidise the transition, and putting up prices for customers. Slashing the grants for electric vehicles once again is a blow to customers looking to make the switch and couldn’t come at a worse time, with inflation at a 10-year high and pandemic-related economic uncertainty looming large.”

Images: Shutterstock, ICCT

Authored by: Jonathan Manning