We have a new Prime Minister, Keir Starmer and the Labour Party are now in power after 14 years in opposition. So what will this big change bring with it for car buyers? We assess what the landscape may look like over the next 5 years of Government.
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Money’s too tight not to mention
The biggest problem for Keir and his crew is the dire state of UK Government finances. Our national debt (the amount we owe to other countries, their national banks and financial institutions) was £2.6 trillion, or £38,000 per person by April 2024. This was the highest it has been since the 1960s. Furthermore, the last Government was spending more than it received in tax thanks to Covid-19 and higher interest rates. The deficit was £121bn in 2023/24. So Keir and his new Chancellor, Rachel Reeves will have to prioritise spending to those areas that need it most.
Will there be any support available to help car buyers make the move to EVs?
The new Government has committed to reinstating a 2030 ban on the sale of new petrol and diesel vehicles. There will be more emphasis on decarbonising the UK’s roads and air generally over the next 5 years. But it’s unlikely that car buyers will get any financial support to buy EVs beyond what we have now.
The biggest barrier for EV users remains the lack of, and reliability of, charge points across the UK. The cost of many entry level EVs has fallen to the point that many models are the same price as Internal Combustion Engine (ICE) equivalents.
Conclusion: Expect no return to there being a plug-in grant for all car buyers. EVs have become more affordable and there is less need for Government to provide assistance on this front. The focus for Labour will be on creating the right business environment for rolling out more charge points across the UK and perhaps a bit more funding and freedom for councils to get charge points implemented on publicly owned land.
Will car buyers and everyone else get cheaper energy?
The new Government is committing to investing significantly more into the UK energy sector by setting up Great British Energy. This will be a new state backed institution that aims to make the UK self sufficient in generating renewable energy and less reliant on oil based/fossil fuel energy imported from other countries . Their plan is to create over 650,000 new green energy jobs in the UK and vastly lower the cost of energy. While more Government money will be spent in this area the hope is to create the conditions for huge levels of private investment – UK and foreign energy companies that want to be part of the UK’s green energy industry.
Conclusion: Expect to see little change to the current fluctuations in energy prices and the cost of charging an EV over the next 3 years. The hope is that things will start to improve on this front by 2027-2030 if the Government manages to successfully implement Great British Energy.
What will happen with petrol and diesel prices?
Improving competition between petrol retailers
We don’t think the Government will do much to intervene on this front. There is still a question mark over competition between petrol stations across the UK, and if lower wholesale fuel prices are passed onto consumers as quickly as higher prices are.
The Government may do more work to give new powers to the Competition and Markets Authority (CMA) in this space. But it will not be a priority over the next 5 years. If the transition to EVs is sped up in the UK and continues at pace across the globe then demand for petrol and diesel will fall and (if these markets are functioning well) prices should fall too.
Fuel duty
The Government currently taxes petrol and diesel at nearly 50% of the retail price, meaning we pay double what the market rate would be. This makes the Government £20bn a year in tax receipts to invest in public services. With firm support for increasing the speed of EV transition the new Government are unlikely to help out at all with cutting fuel duty. They may decide to hold any further increases in the duty paid but don’t expect any give aways to help lower petrol or diesel prices unless prices go really high.
Conclusion: The status quo will continue here. Prices will likely be subject to the global markets on oil and therefore maintaining or lowering fuel duty will likely only come into play if prices reach unaffordable levels for drivers. If this happens it will create a shift in demand for EV impulse buys.
What about tax incentives and rates for EVs?
Will we keep the current VED system or move to road charging?
For Vehicle Excise Duty (VED) the last Government has already set the policy for introducing the standard rate of tax for EVs from April 2025. The current VED system is predominantly based on carbon emissions. There is rumour that Labour are considering bringing in a road charging scheme. Something the last Government were considering. If brought in this would mean car buyers would pay tolls or a tax based on the number of miles they travel. In any case, the Government earned £7bn from road tax in 2022/23, it needs to keep these funds rolling in somehow or find the money elsewhere through and after the transition to EVs or suffer a hit to the pot.
Company car tax
For users of company cars – both employers and employees, company car tax is a big question mark when it comes to EVs. The big one is Benefit in Kind (BiK) tax, the tax paid for using a company car as a benefit. The rate is just 2% for EVs (essentially you pay only 2% of the list price of the car in tax annually). For employees / drivers of company cars – this can be collected through your tax code or is payable through an annual self assessment.
There is a lot of industry pressure to keep this rate low to encourage usage of EVs. Over half of all EVs in the UK are owned by businesses. Car leasing companies and manufacturers argue that keeping BiK low is important for encouraging businesses and individuals into using EVs and moving away from combustion engine cars.
Conclusion: Don’t expect any lower car tax rates over the next 5 years. If anything there could be some increases to company car tax coming as BiK has remained low for several years and it’s an area where the Government could earn some much needed tax revenue. There’s a possibility we could see a complete overhaul of the car tax system before 2030, but if considered this will likely undergo a new assessment exercise by this Labour Government.
Our prediction summary
- There will not likely be any specific financial support give aways available to car buyers.
- Government’s focus will be on setting up and improving the UK’s energy, charge point and charging infrastructure generally at foundation level. These are all long term projects whereby we will not see any significant improvement quickly.
- Petrol and diesel prices will remain subject to market forces with only cuts to fuel duty considered in emergency high price scenarios.
- The car tax system could be overhauled with the new Government perhaps looking at ways to maximise tax revenues. Road pricing/charging may be considered but any changes will need not likely happen over the next 3 years as this needs to first be assessed and there are other legislative priorities.
