Labour hints at major luxury car tax U-turn to boost EV sales

Is the controversial luxury car tax applied to new electric cars costing over £40,000 about to be tweaked or even scrapped? 

A letter from Labour transport minister Lilian Greenwood to a local MP, seen by Auto Express, says the government will consider raising the threshold of the expensive car VED surcharge “for zero emissions vehicles only, at a future fiscal event”. The aim would be to “make it easier to buy electric cars”.

Greenwood is Labour’s minister for the future of roads, and was responding to enquiries made by Ben Maguire, the MP for Launceston, who was in turn representing concerns raised by his constituent - the general manager of a local car dealership - regarding the negative impacts of the ZEV Mandate. 

In her reply, Greenwood also stated that the government response to its recent ZEV Mandate consultation “has provided stability and certainty to British vehicle manufacturers by restoring the 2030 (internal combustion) phase out deadline”. 

She then went on to highlight possible changes to the VED expensive cars supplement that has been imposed on EVs costing more than £40,000 since April. The move to introduce the supplement - often referred to as the ‘luxury car tax’ - has been widely condemned as a major disincentive to EV purchases.

The ZEV Mandate changes have introduced what the government calls ‘flexibilities’ around how manufacturers must meet sales targets for EVs in the run-up to 2030. They also granted a heavily-trailed stay of execution for plug-in hybrid models, which use electric and internal combustion powertrains, up to 2035 but industry insiders scoff at the notion that stability has been achieved. 

Policy threats to the car industry

Discussions Auto Express has had with highly placed car retail group executives suggest they see a number of threats posed by current government policy. These include the potential rationing of petrol and diesel vehicles by dealers as happened in 2024, in order to meet ZEV Mandate EV sales percentage targets. 

They also point to restricted consumer choice with drivers being coerced into vehicles they don’t really want, and the possibility of cutbacks in UK car production costing jobs.

Greenwood’s revelation that a VED luxury car tax break for EVs could be on the cards may prove to further destabilise the EV market if customers choose to hold off on purchases as a result. 

The next ‘fiscal event’ in Labour government parlance will be the autumn budget - still many months away. Now the cat is out of the bag, the question is whether Labour will be forced to move sooner with a road tax cut, in order to provide clarity to car buyers considering a new EV purchase in those interim months.

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