Article by EIC member company RSM UK.
On 6 January 2025, the government began a consultation on phasing out the sale of new petrol and diesel cars by 2030. This aligns with the zero-emission vehicle (ZEV) mandate for car manufacturers and pledged investment into the EV charging infrastructure. The mandate specifies the minimum proportion of car manufacturers’ sales that must be ZEVs.
The impact of the mandate is considered below together with what else is required to ensure a successful transition. The £200m investment promised in the Autumn Budget is unlikely to significantly move the dial on the road to net zero or, specifically, the phasing out of petrol and diesel cars.
Challenges in meeting ZEV targets
According to official figures from the Society of Motor Manufacturers and Traders (SMMT), sales of electric cars reached a new high in 2024. However, despite nearly one in five new cars sold being electric (19.6%), registration numbers in 2024 still failed to meet the 22% target set by the government in its ZEV mandate. This year, the target rises to 28%. Unsurprisingly, industry experts believe the 2025 mandate will be nearly impossible to meet without government intervention.
While manufacturers are committed to meeting the zero emission mandates, consumer demand has not yet reached the level required to make it viable. Several factors contribute to this slow uptake. The high price point for EVs compared to petrol and diesel cars is seen as a deterrent. Additionally, range anxiety and concerns about a lack (whether perceived or real) of charging infrastructure further hinder adoption. The inconvenience of EV charging compared to traditional refuelling is another hurdle that needs to be overcome to encourage EV uptake.
People generally respond well to incentives that encourage ‘good’ behaviour, as opposed to punitive measures that dissuade ‘bad’ behaviour. Three obvious incentives that would help to increase demand for EVs are:
1. Bring public charging costs for EVs in line with the rates paid for home charging: up to 40% of homes do not have access to driveways, making EV charging reliant on public charge points. As these are more expensive and less convenient, this is a significant deterrent for prospective EV owners who do not have access to a private charge point.
2. Exempt EVs from the Expensive Car Supplement: new zero emission cars registered on or after 1 April 2025 with a list price exceeding £40,000 will trigger a five-year liability to the Expensive Car Supplement (currently £410 per annum, so an additional cost of over £2,000). Removing some of the benefits that EV drivers currently enjoy, such as the vehicle tax exemption, further threatens affordability for many drivers when the average price point of EVs sits at £46,000, and that is before factoring in the additional supplement.
3. Exempt, or at least reduce, the VAT charged on the sale of new EV cars: this could be for a finite period of time but might help manufacturers to clear the stockpiling of EV cars on their forecourts as a result of the manufacturing mandates.
Funding EV growth – solutions for declining fuel duties
Funding the incentives and investment for EVs is a difficult balancing act. With dwindling fuel duties and no replacement scheme announced to help to boost the lost earnings, it is unclear where additional funding could be sourced for the much-needed investment and incentives.
Fuel duties are the second highest indirect tax revenue generator for the UK tax purse after VAT, having contributed as much as 8% to the annual tax revenues received between 2004 and 2014. This is an important source of revenue, but it has been on a steady decline, contributing closer to 4% (inclusive of VAT) to the total UK tax revenue over the last four fiscal years. The Office for Budget Responsibility (OBR) reported that the cumulative cost of freezing fuel duty rates between 2010/11 and 2025/26 currently stands at about £100bn.
In addition to the loss of revenue from fuel duties not increasing in line with RPI inflation or other taxes, there is the additional loss of revenues as drivers switch to EVs, which will also contribute to a shrinking tax take with respect to fuel duties.
While EVs currently make up 3% of all cars in the UK, the number of new car registrations that are EVs is increasing year on year. As such, the percentage of EVs is likely to increase, and fuel duties will continue to decline as more people make the switch. The government is yet to announce what it will introduce as an alternative to fuel duty, although the Chancellor did rule out a pay-per-mile road tax as the heir apparent in the run-up to the budget in October, despite this being a favoured replacement scheme in other countries facing the same issue with dwindling fuel duties.
Infrastructure charging network for electric vehicles
The zero emission mandate fails to address the infrastructure needed to counter range anxiety and ensure regular access to charging, especially for consumers without access to street parking.
While the government’s investment of £200m is a step in the right direction, it falls significantly short of the estimated £6bn required, as highlighted by ChargeUK, which committed to this investment in November 2023.
Furthermore, when compared to other countries, the UK’s promised investment appears insufficient and could jeopardise the 2030 phase-out target. For example, the US government is investing $7.5bn in EV charging infrastructure to provide high-speed chargers no less than every 50 miles along major roads. The same cannot be said for the UK, where there are still large areas with a dearth of charge points.
The promised investment is targeting the wrong type of chargers. What people need and want for confidence to charge remotely are high-speed chargers (minimum 50kW, ideally 150kW+), not the slow 7kW/11kW chargers that a lot of street charge points provide. Local authorities should be steered towards installing these high-speed chargers.
This highlights the second issue: the inadequacy of the investment. The average cost of a 150kW+ charger is upwards of £100,000 per unit. As such, if the £200m government investment is directed at the high-speed chargers needed to meet market demands, it would fund only 2,000 chargers. This equates to roughly one charger for every 20,000 registered drivers in the UK, which is unlikely to bring solace to those concerned about queues and delays at charging stations.
Geographical coverage for EV charging
There are significant charging ‘black holes’ in certain parts of the country, and current plans do not seem to be addressing these gaps. For example, most of Wales, Norfolk, Scotland (north of Glasgow and Edinburgh), and a large area between the Scottish border and the Scottish capital lack sufficient charging infrastructure.
The positive news is that, according to an audit compiled by Barbour ABI, more than 120 planning applications for charge points have been granted in the last 18 months by local authorities across the UK. Planners have approved schemes worth £60m for both Kent and Surrey county councils, and the Department for Transport has allocated £70m for sites in London. However, these areas are already comparatively well-served in terms of chargers compared to other regions of the UK.
So, it is not just about providing investment, approving planning, and installing the right type of charger; it is also important to think about the location of the chargers and prioritise under-resourced areas.
Energy from the grid
The charging infrastructure is crucial for a successful transition to EVs. To create expansive charging networks in cities, electricity grids must be prioritised. The electricity powering the grid, and therefore EVs, must be decarbonised. Otherwise, the move to non-combustion engines will be futile if EVs are powered by carbon-emitting fuels. Transparency over the source of the electricity going into the chargers is key, with government input and mandates to ensure public chargers source green energy.
The UK’s EV transition: addressing the charging infrastructure gap
While the £200m funding announced by the government is a positive step forward, it is likely to fall short of what is required in order to support a successful transition away from petrol and diesel vehicles. A holistic approach to the entire supply chain is required. Currently, the UK has roughly 48,000 public chargers, but experts estimate that over 300,000 chargers will be needed by 2030 to meet demand.
Long wait times and patchy availability of rapid chargers have long frustrated drivers, and more investment is required to make EVs as convenient to refuel as traditional cars.
With limited fiscal headroom, it will be interesting to see the outcome of the review and the steps the government can commit to. Incentives will be key for manufacturers and retailers to accelerate progress towards the looming 2030 deadline.
Prioritising low and no-carbon projects and their grid connections will be integral to ensuring any decrease in carbon emissions from transport is not simply replaced by an increase in carbon-rich electricity generation, thus shifting the carbon production to earlier in the supply chain, as opposed to actually reducing it.
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