Revitalizing the Market: How A VAT Cut Can Stimulate Electric Vehicle Demand

The UK has seen a near 18% jump in registered cars, however electric vehicle demand has failed to keep pace. This has prompted the automotive industry to call for a VAT cut to boost sales; a call being made even louder considering the government’s goal to phase out petrol-dependent cars by 2035. In this article, we’ll look at how those in the industry believe a VAT cut could help breathe life into electric vehicle purchases, and why the current situation is far from ideal.

Current State of Electric Vehicle Demand

Analysing the annual figures released by the Society of Motor Manufacturers and Traders (SMMT) in January this year, it was seen that only 315,000 new battery-electric vehicles had been sold in the UK. This number, although up from the previous year, represented just 16.5% of the total, slightly decreasing from the 16.6% the year before.

The Struggling Transition to Electric

Despite the government’s ambitions to virtually eradicate traditional fuel sources by 2035, the low demand for electric cars is becoming increasingly higher on the agenda. This has led the SMMT to recommend the government halve VAT on electric vehicle purchases over the next three years, to the tune of an average £4,000 per vehicle, resulting in an estimated £7.7bn in savings for consumers.

Reasons for Inaction

As the vast majority of cars sold in the UK last year were put towards the leasing industry, the initiative would only apply to new purchasers. This means the same incentive isn’t available to those who leased cars, meaning a much lower probability of conversion to completely electric. Again, the lack of previous consumer support for electric vehicles, such as the government’s scrapping of conversion grants, provides another barrier to an electric transition.

Conclusion

It is clear that those in the automotive industry are adamant about the benefits that a VAT cut would bring to the electric vehicle market. There remain, however, numerous obstacles to overcome before UK-wide conversion can be achieved, many of which are driven by indecision on the part of the government. We can only hope that the proponents of the VAT cut are successful in their efforts.