The Vehicle Excise Duty (VED) system in the United Kingdom has experienced radical shifts that have changed the landscape of costs involved with owning a vehicle. These changes came in on 1 April and have added some new charges, especially for drivers of electric vehicles (EVs). Now Chancellor Rachel Reeves made these moves in her budget last October. She wants to drive more demand for EVs through increasing the price difference between electric vehicles and conventional petrol or diesel cars.
As per the new VED policy, EVs have been excluded from the exemption. Instead, they pay a “showroom tax,” based solely on CO₂ emissions, for the first year of registration. This new tax is currently extremely low—just £10 for EVs. Though not a complete victory, it marks a significant departure from the defeatist exemption status we’ve become accustomed to. After the first year, EV drivers will be charged a flat £195 fee, which just went up from £190.
Financial Implications of the Changes
The fiscal impact of these vehicle shifts goes beyond EVs. The new standard rate for VED is now £195, which is the rate for all vehicles. This increase is part of a larger effort to find new sources of revenue and push consumers to make more fuel-efficient choices.
In the first year, it would result in £4,680 in taxes on a new Land Rover Defender. For a new 1-litre Ford Puma, it will now pay £440 tax – an increase from £220 previously. These changes can illustrate how drastically amounts of duty owed can differ. They vary between £20 and £760, based on the vehicle type and its emissions.
John Cassidy, the Close Brothers Motor Finance managing director of sales, said he was worried. He is concerned that if adopted, VED would have a chilling effect on EV adoption. He stated,
“Applying VED to EVs provides one less incentive for buyers to make the switch.”
Indeed, to that end, the new tax structure would do the opposite of encourage prospective buyers, for whom interest was otherwise piqued by the old exemption policy.
The Expensive Car Supplement
On top of the usual VED increases, a special surcharge has been added for vehicles classified as “high-cost.” This supplement looks specifically at the impact on those cars valued at over £40,000. For the second through sixth years after registration, it levies a surcharge of £425. It’s important to understand that this cost applies to only newly purchased passenger cars, but applies to used secondhand vehicles bought before 2017 models.
The costly vehicle voucher program is supposed to steer consumers toward buying budget-friendlier vehicles. It does provide the government with a valuable source of tax revenue. Consumers are beginning to figure out their options with these new realities. Most will need to make the business case for why the higher upfront costs of newer, more efficient models should be justified by the benefits they provide.
Lorna Macpherson is a motor finance spokesperson for Ocean Finance. She gave us an insight into what she thinks these changes will mean for petrol and diesel vehicle owners. She noted that,
“For petrol and diesel cars, an increase in VED means higher running costs for owners, making newer, more efficient cars even more attractive.”
This point of view reinforces the idea that, even when EVs are subjected to new taxation policies, combustion engine vehicles are more often becoming cost-prohibitive.
Impacts on Electric Vehicle Adoption
These changes are an attempt to increase the adoption of EVs. They make EVs more attractive than equivalent petrol or diesel cars. This introduction of a VED for EVs has alarmed many industry experts. They fear that this change may turn back much of the progress achieved in encouraging greener motoring. The government seeks to maximize revenue generation to accomplish its own environmental goals. Yet, it’s unclear how these combined efforts will serve to change consumer behavior.
As the auto industry adapts to these new regulations, it will be essential for manufacturers and consumers alike to reassess their strategies. These reforms bring new challenges and opportunities as the fight to get our transportation network sustainable and on the right course continues.