Electric car plugged in

Journalist Jonathan Manning analyses the impact of the recent policy change.

The government’s decision to withdraw the Plug-In Car Grant (PICG), a £1,500 subsidy towards the acquisition cost of a new electric car, has been met with consternation in the leasing, fleet and automotive sectors.

While the grant was always designed to stimulate, rather than subsidise the market for electric vehicles, its withdrawal sends the wrong signal to new car buyers and raises concerns among company car drivers that the advantageous BIK tax treatment of zero emission cars might be next in government crosshairs.

The £1,500 grant also effectively reduces the rental on a typical three-year lease by about £40 per month, adding cost to market that is facing inflationary pressures from rising car prices and increases in interest rates.

When the PiCG was launched in 2011, it applied to both electric and plug-in hybrid (PHEV) cars, and offered up to £5,000 off the price of a car with CO2 emissions below 75g/km. Since then its generosity has been steadily whittled away, while its qualifying criteria have tightened. PHEVs no longer qualify, and the price of eligible vehicles has been lowered to a maximum of £32,000.

Grants will still be honoured for vehicles already on order, and £300 million of Government money will now be directed towards stimulating EV sales in specialist sectors. Battery electric light commercial vehicles accounted for only 4% of new van sales in the first five months of this year, and represent only 0.6% of the commercial vehicle parc, where diesel enjoys a 96.2% market share.

The government has also said that it will target future funding towards the expansion of the public chargepoint network, a crucially important element in sustaining electric car sales.

Transport Minister Trudy Harrison said: "Government funding must always be invested where it has the highest impact. Having successfully kickstarted the electric car market, we now want to use Plug-in Grants to match that success across other vehicle types, from taxis to delivery vans and everything in between, to help make the switch to zero emission travel cheaper and easier.”

Wrong signal

While the leasing sector accepted that the Government is right to prioritise electric commercial vehicles and charging infrastructure, it warned that the end of the grant sends the wrong signal to company and private motorists.

Karl Howkins, managing director of flexi-lease specialist SOGO mobility, said the government had severely misjudged the state of the market.

“As fleet and personal adoption of EVs start to make a meaningful impact on the UK car park, a key incentive is removed,” he said. “The road to net zero emissions still has significant hurdles for both cars and van fleet. Now is the time for additional measures to be put in place to accelerate change rather than applying the brakes.”

Of even greater concern is the future trajectory of the BIK tax levied on electric company cars and paid through salary sacrifice schemes. The favourable tax treatment – currently just 2% of the P11D value (official price) of a car, compared for example to 26% for a Volkswagen Golf 1.6 diesel – has played a massively important role in accelerating the uptake of electric cars within fleets and wider employee groups.

Benefit in kind

The Association of Fleet Professionals (AFP) expressed fears that the withdrawal of the PiCG suggests the government may now believe the company car market has sufficient EV momentum to require no more support.

“We are concerned that similar moves may be made around benefit in kind taxation from the middle of the decade, which is an area where we feel there very much needs to be a ‘soft landing’ over time,” said Paul Hollick, chair at the AFP.

HMRC has published BIK tax rates up to 2025, and the fleet sector is intensifying its calls for the government to provide more clarity on the rates that will apply beyond this date. “What the government should note is that the impetus behind EV use by businesses is yes, partially driven by environmental concerns but also by financial advantages. If the sums for operating EVs don’t stack up, adoption could very well slow down,” said Hollick.

He described the withdrawal of the PiCG as ‘premature’, adding that, “At a time when both vehicle prices and costs are rising, the removal of the grant makes the process of electrification notably more expensive at the sub-£32,000 end of the market where it applied.”

This view was echoed by Sue Robinson, chief executive of the National Franchised Dealers Association, who described the decision to close the PICG as ‘exceedingly disappointing’, and added that “it will, without doubt, heavily disincentivise EV adoption across the UK and has the potential to derail the positive progress the automotive sector has made towards decarbonising transport.”

Net zero target

At the SMMT, which represents vehicle manufacturers, chief executive Mike Hawes, said the decision to scrap the PICG sends the wrong message both to motorists and to an automotive industry which remains committed to government’s net zero ambition.

“We are now the only major European market to have zero upfront purchase incentives for EV car buyers yet the most ambitious plans for uptake,” he said.

France and the Netherlands, for example, offer grants of up to €4,000 towards the cost of a new electric car; while Germany offers up to €6,000.

The UK government does, however, remain committed to a ban on the sale of new petrol and diesel cars and vans from 2030.

“With the sector not yet in recovery, and all manufacturers about to be mandated to sell significantly more EVs than current demand indicates, this decision comes at the worst possible time,” added Hawes. “If we are to have any chance of hitting targets, government must use these savings and compel massive investment in the charging network, at rapid pace and at a scale beyond anything so far announced.”