Economic think tank advocates tax increases on petrol vehicles in the UK

An economic think tank, the Resolution Foundation, has recommended that the UK government consider increasing taxes on petrol and diesel vehicles to increase the appeal of electric vehicle (EV) purchases.

In a recent report, the Foundation expressed concern about the stagnation of EV sales and urged ministers to take action if the trend continues.

The study suggested removing “arbitrary” tax incentives that disproportionately benefit higher-income individuals, particularly through in-kind perks available primarily to corporate car drivers. The report emphasized that current salary sacrifice schemes favor higher earners, thus increasing the disparity in EV adoption.

To stimulate demand, the Resolution Foundation proposed that the government announce in advance the withdrawal of existing tax incentives, prompting consumers to act before these benefits expire. If sales concerns persist, the think tank urged the government to increase taxes on new non-electric vehicles, reducing the cost differential between traditional cars and EVs, rather than further subsidizing electric vehicles.

The report also highlighted the significant disparity in charging costs, noting that public charging can be up to £425 more expensive annually than the average domestic mileage charge. To resolve this issue, the Foundation called for a reduction in VAT on public charges from 20% to 5%, aligning it with national rates. They also suggested improving public charging infrastructure to increase competition and alleviate supply problems.

The urgency of decarbonising transport is underlined by economist Jonathan Marshall, who noted that travel is responsible for a third of the UK’s carbon emissions. He said achieving net-zero emissions targets by 2050 requires rapid decarbonisation of the transport sector. Marshall highlighted the potential for significant savings – more than £20 billion annually by the mid-2030s – if the transition to electric vehicles is managed effectively.

However, he warned that without equitable policy changes, financial benefits could accrue predominantly to the wealthiest families. The report advocates universally accessible pricing, specific discounts on public transport and a fair carbon price to ensure a fair transition.

Steve Gooding, director of the RAC Foundation, echoed the need for a more equitable approach to EV incentives, saying tax benefits aimed at wealthier families could hamper wider adoption. He emphasized the importance of improving public charging infrastructure to alleviate consumers’ hesitations toward EVs.

Fiona Howarth, CEO of Octopus Electric Vehicles, noted that although consumers are eager for electric cars, financial barriers remain a significant concern. She advocated for greater affordability of EVs to ensure that the benefits of the transition to electric vehicles are accessible to all drivers.

Overall, the Resolution Foundation report calls for a multi-pronged approach to encourage EV adoption, highlighting the need for equitable policy changes, better charging infrastructure and a commitment to decarbonizing the transport sector.