Autumn Budget 2022: what does it mean for motorists?

Electric cars, vans and motorcycles are to be taxed from 2025, under plans revealed by the Government in the Autumn Statement.

The changes to VED tax mean that private buyers who choose a new electric car after 1 April 2025 will have to pay £10 of tax in the first year, with this rising to an annual fee of £165 from the second year. In addition, electric cars costing more than £40,000 will no longer be exempt from the Government’s expensive car supplement, so will attract an extra £355 a year in tax for the first five years of ownership.

Electric vans will move towards being taxed at the same rate as those powered by petrol and diesel, which the Government says should cost most van drivers £290 per year.

Alongside these changes, the existing rates for hybrid and plug-in hybrid cars will rise, although the Government has yet to confirm by exactly how much.

During the announcement, Chancellor Jeremy Hunt also confirmed that the benefit-in-kind (BIK) rate for electric vehicles (EVs) used as company cars will increase from 2% to 3% in April 2025, then rise 1% each consecutive year to 5% in 2027/28. Alongside this, the rates for non-electric cars will rise by 1% – up to a maximum of 37% – in the 2025/26 tax year, but will then remain fixed for the next two years.

The measures are designed to claw back up to £35 billion in lost taxes as more buyers switch to EVs. Hunt said a change was needed to make the system “fairer”.

Documents published alongside the announcement reveal that the Government expects to take £515 million from taxation on electric cars in 2025/26, rising to £985 million in 2026/27, and £1.6 billion in the 2027/28 tax year. 

So far this year, sales of electric cars have boomed, with approximately one in six new cars bought in the UK fully electric. Under the current system, drivers running EVs do not have to pay road tax because the rate is based on a vehicle’s official CO2 emissions.

The reaction from the car industry has been mixed. The RAC's Head of Policy Nicholas Lyes said it was “probably fair” that owners of electric vehicles “contribute to the upkeep of major roads”.

However, AA President Edmund King said the Chancellor’s electric car taxation plans would “dim the incentive to switch to electric vehicles” and “delay the environmental benefits and stall the introduction of EVs onto the second-hand car market".

Sue Robinson, Chief Executive of the National Franchised Dealers Association also commented that the policy will make electric cars “less appealing” and that it “sends the wrong message at the wrong time”.

Previously, it had been rumoured that a road pricing scheme, where drivers pay a fee for each journey undertaken, would be announced as the preferred method of taxation by the Government for electric vehicles. However, it has decided against this for now. 

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