Flat annual tax on all electric cars should replace VED in the future

This is the latest report in a series of weekly updates for industry colleagues from Rachael Prasher, managing director of What Car? and Haymarket Automotive. Quoted poll data is from more than 1700 whatcar.com users.

One of the big questions the Government will need to answer in the next few years is how to tax electric cars. Currently, fully electric vehicles remain exempt from the annual Vehicle Excise Duty – a move that was created to incentivise their uptake.

As electric registrations increase, and we move closer to the 2030 ban on the sale of new petrol and diesel cars, the Treasury will need to change how VED is calculated for electric cars because the current CO2-emissions-based system will not be fit for purpose.

To find out what current drivers and in-market buyers would prefer, we polled 1796 drivers as part of our latest weekly industry study.

More than a third of drivers (34%) were in favour of a flat annual tax on all electric cars, to be equal across all makes and models. Nearly a quarter (23%) said they would like to see road charging introduced, with owners charged per mile driven. A progressive annual tax based on the car’s original list price was favoured by 18%, while another 18% preferred a progressive annual tax based on the vehicle’s battery size.

Seven-out-of-10 drivers told us they wished electric vehicles already incurred road tax. Of the 30% in favour of keeping EVs tax-free for now, 34% want taxation to apply not before the Government ban on the sale of new petrol and diesel cars arrives in 2030, while 12% want them to be taxed by 2025.

We also asked whether current petrol and diesel car owners should pay a higher tax after 2030 and 30% of drivers said yes, hoping that it would further accelerate the uptake of electric vehicles.

Vehicle tax is always a contentious topic, but our research suggests that most drivers would like an equal tax placed across all fully electric vehicles in the future, making it fairer and easier to choose between models.