The State of Electric Car Sales in the UK: Exploring the Need for a VAT Cut

The automotive industry in the United Kingdom has experienced a significant leap in the number of new car registrations, with a nearly 18% increase compared to the previous year. However, despite this growth, the demand for electric vehicles (EVs) has remained stagnant. In response to this, industry experts are calling for a reduction in VAT to stimulate sales. This article delves into the current state of electric car sales in the UK, the challenges faced by the market, and the potential impact of a VAT cut on the industry. The State of Electric Car Sales in the UK: Exploring the Need for a VAT Cut

The Rise in New Car Registrations

According to the Society of Motor Manufacturers and Traders (SMMT), a total of 1.9 million new cars were registered in the UK in the past year, surpassing the previous year’s figure of 1.6 million. This marks the highest level of registrations since 2019 when 2.3 million cars were registered. The increase in new car registrations is a positive sign for the automotive industry, which faced supply chain disruptions and chip shortages due to the COVID-19 pandemic.

The Stagnant Growth of Electric Vehicle Market

Despite the overall growth in new car registrations, the demand for electric vehicles has plateaued. In 2022, a total of 315,000 new battery electric vehicles were sold, representing an increase of 50,000 compared to the previous year. However, as a share of total registrations, electric vehicles accounted for just 16.5%, slightly down from the previous year’s 16.6%. This lackluster growth is concerning, especially considering the government’s goal of phasing out petrol, diesel, and hybrid vehicles by 2035.

The Government’s Commitment to Electric Vehicles

To support the transition to electric vehicles, the UK government introduced the zero emissions vehicle (ZEV) mandate. This mandate requires car manufacturers to ensure that 22% of all vehicles manufactured by them are ZEVs by the beginning of next year, with the percentage rising to 80% by 2030. However, the latest figures indicate that the industry is falling short of this target, and the transition to electric vehicles is slowing down.

The Call for a VAT Cut

In light of the stagnant growth in the electric vehicle market, the SMMT is urging the government to implement a VAT cut on all new ZEV purchases over the next three years. This proposal, which would amount to an average saving of £4,000 per purchase, aims to stimulate consumer demand and put an additional 250,000 electric vehicles on the road by 2026. The SMMT estimates that this VAT cut could save consumers a total of £7.7 billion over the three-year period.

Mike Hawes, the CEO of SMMT, emphasizes the importance of consumer incentives in driving electric vehicle sales. He believes that the VAT cut would not only benefit consumers but also help the UK become the leading European market for electric vehicles. The time-limited nature of the VAT cut ensures that it delivers the desired environmental outcome while providing the necessary support for mass-market adoption.

Hybrid Electric Vehicles and Superminis

While the growth of purely electric vehicles has been sluggish, the sales of hybrid electric vehicles (HEVs) have shown a more positive trend. In the past year, 380,000 HEVs were sold, constituting 20% of all new registered vehicles. This indicates that consumers are still opting for a combination of traditional and electric powertrains.

Superminis, such as the Ford Fiesta and Vauxhall Corsa, continue to dominate the UK car market, accounting for nearly 30% of all new vehicles. Their compact size, efficiency, and affordability make them a popular choice among consumers.

Government Support and Financial Incentives

The UK government has made efforts to encourage the adoption of electric vehicles by providing financial support and building the necessary infrastructure. Over £2 billion has been allocated to reduce purchase costs for drivers and develop the required charging infrastructure. This includes local electric vehicle infrastructure funding, targeted plug-in vehicle grants, and low first-year vehicle excise duty.

However, there has been criticism regarding the timing of the government’s withdrawal of financial incentives for private electric vehicle buyers. In 2022, grants of up to £1,500 for new purchases were discontinued. Industry experts argue that this reduction in consumer support came too early, as it hinders the transition to electric vehicles among the more hesitant buyers who make up the mass market.

Conclusion

The UK automotive industry has seen a significant increase in new car registrations, but the growth of electric vehicle sales has remained stagnant. The government’s goal of phasing out petrol, diesel, and hybrid vehicles by 2035 is yet to be realized. To address this issue, the SMMT is urging the government to implement a VAT cut on new electric vehicle purchases. Such a measure would provide the necessary consumer incentives to drive adoption and help the UK become a leading market for electric vehicles. With the right support and incentives, the future of electric vehicles in the UK can be significantly brighter.

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