Since 2011, the UK government has been offering a taxpayer funded discount on the sale of battery electric vehicles. Known as the ‘plug-in car grant’, it is designed to help motorists switch from diesel or petrol to electric driving.
But last month the fair was demolished with immediate effect. It wasn’t exactly a surprise, as the amount buyers could recover had gradually been reduced from £5,000 up to £1,500; or that it was recently only available for new vehicles costing less than £32,000 (the average cost of electric cars is approx) £43,000).
In fact, the government had been trying to scrap the subsidy completely for some time now. only one big recoil a few years ago, the government forced them to do a quick handbrake turn and keep it on for a while.
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Now, however, the high demand for electric vehicles seems to have given the Treasury the green light to pull the plug once and for all. Instead, it apparently chooses a “shift focus” towards charging infrastructure, although no new funding has been announced for this.
The government argument for scrapping the subsidy is that it has already done its job to get the wheels of the electric car market moving. Owning an electric car also has significant financial benefits, such as lower operating costs and no road tax.
And it’s true that the electric vehicle market is picking up. Prices have fallen, the model range has improved and it is estimated that: one in four cars which will be sold in the UK and EU this year, may run on batteries.
But that could change soon. Other countries that have withdrawn financial aid to car buyers have a dip in the question for electric cars.
For the time being, the government says it is essentially switching to support for the charging infrastructure and commercial vehicle buyers.
At first glance, focusing on the purchase of commercial vehicles makes sense. Many companies buy new cars and their drivers tend to drive more miles than private owners. So if they can be encouraged to buy electric cars, it will help reduce CO₂ emissions on the road.
After two or three years, those commercial vehicles will enter the used vehicle market, potentially increasing the number of electric vehicles available.
But it raises a big question about honesty. Subsidizing company cars provides savings for entrepreneurs and employees who can benefit from a company car tax benefits. Opting for an electric vehicle is increasingly becoming an obvious choice for managers and entrepreneurs, with a tax system designed to help them.
So far, so good – for the relatively wealthy. In affluent areas of the UK, shiny new Teslas, Polestars and e-Trons connected to the domestic electricity supply have become a common sight on driveways.
Driving business away
In poorer areas they are much less common, as are the driveways. But those who have their own charging point at home enjoy much cheaper rates, because connecting to a charging point on the street means that you have to pay 20% VAT on the electricity instead of 5% of a domestic tariff.
So while targeting commercial vehicles and fleet drivers makes sense in promoting wider adoption of electric vehicles, the policy seems quite regressive. The government seems to have forgotten to help the less fortunate with electric driving.
New Zealand, on the other hand, recently announced a “clean car upgrade program” which aims to provide low- and middle-income families with low-emission cars through what is essentially a scrap-and-replace scheme. In Scotland, a new plan offers interest-free loans to anyone who wants to buy a new or used electric car. It will be interesting to see if these ideas have the desired effect.
Meanwhile, the global auto industry is severely constrained by the chip shortage. In the UK it is also under pressure from the shift in approach which now prefers the “stick” of economic mandates to the “carrot” of publicly available subsidies.
Below the zero-emission vehicle mandatemanufacturers will have to sell a certain share of electric vehicles before 2030. If they fail to meet the targets, they will be fined.
Unsurprisingly, the government’s latest measures haven’t went well with a car industry struggling in a difficult economic environment. And also, the government must not forget the economic challenges for drivers of rising gasoline prices and rising costs of living. If it wants more of them to make the switch to electric vehicles, it needs to be much more focused on making a affordable option for as many drivers as possible.
This article by David Baileyprofessor of business economics, University of Birminghamand Phil Tomlinson, Professor of Industrial Strategy and Deputy Director Center for Governance, Regulation and Industrial Strategy (CGR&IS), University of Bathhas been reissued from The conversation under a Creative Commons license. Read the original article.
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