Autumn Statement 2022: what mini-Budget means for motorists, including new EV car tax

How Jeremy Hunt’s announcement will affect drivers as he announces reforms to car tax structure

Chancellor Jeremy Hunt has completed his Autumn Statement in which he announced a around £30 billion of spending cuts and £24 billion in tax rises over the next five years.

In the face of soaring inflation Hunt said he was forced to make “difficult decisions” to slow the economic downturn and these included raising the energy price cap and lowering the tax threshold fo the highest earners.

Motorists were also not exempt from the Chancellor’s focus, although the changes affecting drivers were not as severe as some had predicted.

Car tax for EVs

Until now owners of EVs have not had to pay annual Vehicle Excise Duty (VED) but prior to the statement Whitehall sources hinted that changes were on the way. A Government source told the Telegraph that it was “inevitable” that EV owners would have to pay tax and Hunt confirmed this decision in his announcement.

The change, which the Chancellor said would make the country’s vehicle tax system fairer, means that owners of any zero-emissions vehicle registered since March 2001 will have to start paying VED from 1 April 2025. Anyone buying a new EV from that date will pay the lowest first-year rate (currently £10) then the same standard rate as petrol and diesel owners in subsequent years. Owners of EVs registered between April 2017 and April 2025 will also pay the standard annual rate, which is currently £165. Those with EVs registered between March 2001 and March 2017 will pay the band B rate, currently £20.

The shift from petrol and diesel cars towards electric vehicles threatens to cost the Treasury £7 billion in lost VED and applying the tax to EVs is seen as one way of addressing this. Many industry observers said the change in policy was inevitable but some warned it could have a negative impact on the government’s efforts to encourage EV ownership.

Quentin Willson, founder of campaign ground FairCharge said: “It is right that the Chancellor is starting to think about ways to fill the growing fuel duty hole, but introducing VED on EVs without a corresponding increase for combustion cars will reduce incentives to go electric. What’s more, because new car buyers are generally well off, increasing VED on combustion cars, particularly SUVs, would hit the highest earners who drive the most polluting vehicles the hardest. This would have raised revenue while keeping all important incentives to reduce emissions.”

Ian Plummer, director of online marketplace Auto Trader, said: “The Chancellor is clearly looking for revenues, but the prospect of additional running costs will drive more would-be buyers away from EVs when other incentives are being scrapped and high energy bills are eroding the advantages of going electric.”

Road pricing

Depsite rumours earlier in the week that the Chancellor would reveal more wide-ranging changes to the vehicle tax landscape there was nothing in the Autumn Statement on idea of pay-as-you-drive road pricing.

On Wednesday a former special adviser to ex-Transport Minister Grant Shapps hinted that Mr Hunt could announce plans for a road pricing programme as part of changes to how motorists are taxed. Meera Vahder tweeted: “Tomorrow Jeremy Hunt is expected to launch proposals on road pricing - a new form of taxation which will overhaul fuel duty and VED. Long awaited it takes a brave govt to propose wholesale change to the way we pay for driving.”

However, Hunt made no reference to the concept, which has been raised as a potential solution to the declining revenue from fuel duty and car tax. Although millions of petrol and diesel cars will remain on the roads long after the 2030 ban on new combustion engine cars, income from the duty on petrol and diesel will plummet in coming years. It is predicted that by 2040, the Treasury will face a loss of £35bn between fueld duty and VED losses.

Under a road pricing scheme, drivers of all types of vehicle would pay according to how much and where they use their car. Such a scheme could factor in the type of vehicle and the roads it is driven on and its backers say it should support vulnerable groups such as those with mobility issues, and people in remote areas to ensure they are not adversely affected.

The Transport Select Committee said last year that telematics-based road pricing was the only viable solution to the fuel duty and VED black hole. However, when London mayor Sadiq Khan proposed a road pricing scheme for the capital earlier this year, City Hall warned the technology was “years away”.

Electric cars could become subject to VED for the first timeElectric cars could become subject to VED for the first time
Electric cars could become subject to VED for the first time

Fuel duty

The Chancellor also elected not to make any changes to fuel duty amid warnings that any increase in the tax could worsen inflation. Some industry observers worried that reversing Rishi Sunak’s reduction in fuel duty would have been a quick way to raise revenue for the Treasury but at the expense of drivers already facing sky-high petrol and diesel prices.

In his March mini-Budget, Rishi Sunak cut fuel duty by 5p per litre in a token effort to ease the pressure of soaring fuel prices. That brought the tax on fuel down from 57.95p per litre to 52.95p per litre until March 2023, denying the exchequer millions of pounds in revenue.

Ahead of the statement RAC fuel spokesman Simon Williams warned: “Our analysis shows there is a clear link between inflation – however it’s measured – and fuel prices. When the prices drivers pay to fill up rise, inflation seems certain to follow. So many of us have little choice but to drive, so it would be very unfair to punish people for getting to work, doing the weekly shop or visiting and caring for family members.”

Related topics: