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Electric vehicle (EV) drivers in the UK are facing an additional financial burden, estimated at £85 million in 2025, due to a significant disparity in value-added tax (VAT) rates between public chargers and home electricity usage. This discrepancy, referred to as a “pavement tax” by industry leaders, is hindering the transition away from fossil fuels, as noted by various stakeholders in the automotive sector.
The VAT Conundrum for Electric Vehicles
Currently, residential consumers benefit from a lower VAT rate of 5%, while businesses, which include operators of public EV chargers, are subject to a 20% VAT rate. This inequity means that individuals using public charging stations bear higher costs compared to those charging their vehicles at home.
According to a report by the data company, this additional tax burden is projected to escalate to £315 million annually by 2030, as EVs are anticipated to make up 80% of new car sales under the government’s zero-emission vehicle (ZEV) mandate.
Calls for Rethinking VAT Policies
As the UK government considers relaxing the ZEV mandate due to declining car sales, industry representatives argue that adjusting VAT rates could significantly boost demand for electric vehicles.
Eurig Druce, the UK group managing director of Stellantis, which encompasses brands like Vauxhall and Peugeot, expressed concern about the growing divide in vehicle ownership. He stated, “The path to electric has been set, but we risk creating a two-tier system where those with a driveway pay less to get around than those without.”
The FairCharge campaign group has taken action by appealing to Darren Jones, the Treasury chief secretary, imploring that this “pavement tax” is stunting EV adoption. Quentin Willson, founder of FairCharge and a former presenter of Top Gear, highlighted the inconsistency in VAT rates as a glaring policy oversight that needs correction. He asserted that “reducing the VAT burden on public charging is essential for progress towards electrification.”
A Comparative Look at Taxation
Despite the growing calls for equalizing VAT rates, the £85 million expected additional cost to EV drivers in 2025 remains a fraction of the £2 billion the government allocated to maintaining duty freezes on petrol and diesel fuel in the recent budget. This freeze has faced criticism from environmental advocates who argue for fairer tax practices.
Meanwhile, Chancellor Rachel Reeves defended the freeze, stating that it aims to prevent added financial strain on households. Experts note that eliminating this charging disparity represents a small fiscal adjustment relative to the significant subsidies currently enjoyed by petrol-driven vehicles. However, there may be hesitation from the Treasury to decrease VAT in light of an anticipated decline in fuel duty revenues as electric vehicle adoption grows.
Industry Voices on the VAT Debate
Delvin Lane, CEO of InstaVolt, a prominent charge point operator, remarked that any reduction in VAT would be directly passed on to consumers, promoting fair pricing for those reliant on public chargers. “This small change would encourage more drivers to make the switch and support price parity between home and public charging channels,” he stated, expressing surprise at the lack of action on the issue thus far.
Additionally, Matt Galvin, managing director of electric car brand Polestar in the UK, emphasized the urgency of addressing this VAT discrepancy as a crucial step in promoting EV adoption, particularly for private buyers who might be deterred by higher costs associated with charging.
Government’s Stance on Electric Vehicles
A Treasury spokesperson reaffirmed the government’s commitment to supporting the transition to electric vehicles, framing it as a vital component of decarbonizing the transport sector and bolstering economic growth in the UK. While emphasizing fiscal stability, the spokesperson noted that the government continues to offer incentives through tax policies, including frozen vehicle excise duty rates for EVs to encourage greener choices.
In summary, addressing the VAT disparity in public and private EV charging is becoming an increasingly vital discussion in the UK as stakeholders strive to facilitate a smoother transition to electric mobility while ensuring equitable access for all drivers.
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