“The profit the government makes from every electric car sold is untenable.”
Mike Rutherford believes that value-added tax hits the affordability of electric cars, and thus leads to lower sales in showrooms
We need to talk about value-added tax and its role in preventing drivers from buying pure electric cars. In his fall budget, Chancellor Rishi Sunak barely mentioned VAT, no matter the damage it causes to retail electric vehicle prices. The truth is that value-added tax seriously hits affordability and kills sales in showrooms that must sell more to meet the government’s environmental goals.
Pure electric cars are really more expensive in the first place, so, for the end consumer, they are naturally more expensive than equivalent models of combustion engines. This is fair enough and justified – if financially painful. But the government’s excessive ‘profit’ from every electric car sold to a private driver is unfair and untenable, even if grants are available for cars under £35,000.
The electric car with the flavor of the month isn’t made by a luxury car company, but rather by humble Kia , a company that’s in the same league of “everyday cars” as Ford or Vauxhall. So, what is the VAT invoice charged for an EV6? How about £6,707 for the Standard Air Edition or £8541 for a GT-Line S. How is that spent? More expensive electric cars, which the government loves, earn nearly twice as much VAT revenue as cheaper internal-combustion engine vehicles that they hate. Kirching!
That quick and easy £9,000 (to do what?) profit on just one EV6 GT-Line S sale is almost certainly greater than the combined profits of the manufacturer, shipping companies, dealership and all others involved in the single deal. It is not just silent profiteering on the part of the UK government. It is counterproductive. How the hell could a £9,000 VAT bill for a new Kia EV6 five-door, five-seater be nearly the same as the all-in-one price (including VAT) at a slightly smaller but still new, five-door Dacia Sandero, five-seater petrol? That’s financial insanity — enough to force cash-strapped motorists (that’s most of us) away from family electric vehicles.
There’s a quick and easy remedy to all of this: reduce the standard value-added tax rate (20 percent) on pure electric vehicles. Better yet, eliminate it completely. In 2011, it was greedy conservative chancellor George Osborne who raised the value-added tax to the 20 per cent level. Therefore, it would be appropriate and productive for conservative advisor Sunak to be flexible and move it in the opposite direction — at least for some critical or safety-related products such as electric vehicles.
After all, despite the high prices of electric cars, they are not free but necessary luxuries (especially in urban environments), and are designed to transport drivers, passengers, bikes, work tools, groceries and other light goods in a clean, green, quiet and safe way. So a value-added tax rate of 10 per cent is more than justified, while zero per cent is preferred.
As the government has faced the greatest challenge in automotive history by trying to convert consumers to pure electric cars, the least it can do is stop the punitive 20 percent value-added tax rate holding them back.