The Treasury is expected to announce it will spend a further £1.3billion on the Electric Car Grant (ECG) in this week’s Budget.
It will be part of a total £1.5bn package to accelerate the switch to electric vehicles set to be announced by the Chancellor on Wednesday.
The Electric Car Grant, which aims to help drivers switch to more affordable EVs, offers motorists a discount of up to £3,750 off a new, sustainable EV under £37,000.
The ECG is set to be extended for another year, and will be accompanied by £200million towards creating thousands of new charging points, the Treasury has briefed.
However, Rachel Reeves is still expected to announce a controversial pay-per-mile tax on electric vehicles in the Budget in order to help fill the predicted £40billion black hole caused by the move to EVs.
Some in the industry warn that EV pay-per-mile ‘could stall the progress’ of the ECG, and the incentive scheme has yet to make any real difference to the uptake of EVs.
The Treasury is expected to pledge another £1.3bn towards the Electric Car Grant in this week’s Budget to incentivise the uptake of cheaper electric cars
The ECG was launched in July, and the Government has said it has since helped over 35,000 drivers make the switch to EVs by cutting the upfront cost.
The £1.3billion that’s expected to be announced in the Autumn Budget towards discounting EVs is on top of the £650million already pledged to slash EV prices for car buyers.
The £200million proposed to help the rollout of electric car chargers will be added to the £400million already committed at the Spending Review.
In a bid to help households without driveways Rachel Reeves is also expected to publish a consultation on Permitted Development Rights to make it easier and cheaper for people without a off-street parking to charge.
While the measures have been welcomed by the car industry, questions remain as to how effective they will be if EV pay-per-mile is indeed brought in.
Edmund King, AA president, said: ‘The initiatives to boost EV take up are going in the right direction but we just hope that speculation about EV ‘pay as you go’ doesn’t stall this progress.
Drivers accept that EV owners should pay their way but the timing of current speculation about a scheme that may be introduced in three years isn’t really helping.
‘Ultimately, we probably need a fundamental review of all motoring taxation to set it on a fair basis that doesn’t discriminate against rural and disabled drivers.’
Chancellor Rachel Reeves is expected to announce a total of £1.5bn worth of EV related funding, with the ECG amount joined by £200million towards increasing charging rollout
Pay-per-mile would plug the hole caused by the billions lost in fuel duty and emissions-based vehicle excise duty (VED) but would leave EV drivers paying 3p for every mile they travel in their electric car.
This could see drivers paying £300 a year to cover the average 10,000 miles an EV owner drives a year.
This would be in addition to the £195 standard rate VED EVs already pay.
It is estimated that EV pay-per-mile would help the Treasury raise an estimated £1.8billion by 2031.
However, many see it as being incredibly poorly timed, as public demand for electric cars is fragile, manufacturers are on the brink of being fined for missing goverment EV sales targets and the EV charging network’s growth rate is slowing down.
The Treasury’s pre-budget briefings have also brought out criticism that the ECG is yet to expand the market for EVs.
There are concerns that the touted EV pay-per-mile tax that is likely to come in will not only set many EV owners back an extra £300 a year but will deter people from buying EVs and make the ECG redundant
Independent transport research organisatiom, New Automotie found that the scheme has yet to expand the market for EVs.
In its study ‘That fuzzy feeling: A first analysis of the impact of the Electric Car Grant‘ New AutoMotive found that 23.8 per cent of new registrations in September were BEVs, the same as their share before the Electric Car Grant was announced.
Therefore there was ‘limited immediate impact on overall market share’ and New AutoMotive ‘found little evidence that the grant was encouraging consumers to switch to eligible models overall’.
‘It isn’t yet clear that it’s prompting consumers to consider buying cars that they wouldn’t have gone ahead and bought anyway,’ David Farrar, policy manager for New AutoMotive, said.
Transport Secretary Heidi Alexander told the BBC’s Sunday with Laura Kuenssberg programme that the Electric Car Grant would support economic growth.
‘This is an investment in the country’s future… and the good quality manufacturing jobs associated with that,’ she said, noting the production of the Nissan Leaf in Sunderland.
‘So making sure that we are enabling people to buy a new electric vehicle if that’s what they want to do, whilst also investing in charging infrastructure, it is the right long-term decision.’
The governemtn is commissioning a report into how to reduce the costs of public EV charging, with a reduction in VAT potentially on the books
What other measures is the Treasury looking at for EVs? Cutting price of public charging but pairing back salary sacrifice advantages
The government has also said that it will review the cost of VAT on public charging due to the rising price of public EV charging in recent years.
A report will be wrapped up by Autumn next year which will look at the impact of energy prices, including wider cost contributors, alongside options for lowering these costs for consumers.
The EV industry has been demanding VAT on public is cut to charging for years, slashing it from the current 20 per cent down to the five oer cent rate of home electricity.
In a less EV-positive move it looks like Salary sacrifice – a popular scheme where people pay to lease a car through their employer before tax and national insurance contributions – will be reduce as the chancellor tries to claw back money.
Salary sacrifice schemes cost the Government around £4bn a year in missed tax revenue and so it’s being speculated that Rachel Reeves will cap the amount that can be contributed via salary sacrifice without incurring national insurance (NI).
In other words the amount you’re allowed to ‘sacrifice’ will be capped.
Currently standard NI rates are eight per cent and two per cent for high earners, and exceeding the new cap would be subject to these rates.
Figures from the British Vehicle Rental and Leasing Association (BVRLA) show salary sacrifice is increasingly popular with the vehicle funding method up 118 per cent year-on-year.
Leasing companies reported a 7,000 per cent year-on-year rise in salary sacrifice leases for used vehicles (to 3,990 cars) in the three months to June 2025.
Unsurprisingly salary sacrifice providers are therefore urging the Chancellor to ‘distinguish between pensions and electric vehicles’.
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