Tax certainty will strengthen decarbonisation momentum

Writing for EV Fleet World Magazine, the BVRLA's Head of Policy & Public Affairs Thomas McLennan examines the need for incentivisation and support for world-leading transport decarbonisation targets

The UK Government has some of the most ambitious goals globally for decarbonising road transport and we cannot hope to meet world-leading targets for transport decarbonisation without world-leading incentivisation and support.

The fleet sector is already leading the charge and will continue to do so with the right support and although the Government acknowledges the vital role that our sector continues to play, we will need to see better alignment between fiscal and environmental policy if we are going to see a faster and more widespread adoption of zero-emission vehicles.

The steps taken in the next four years will be crucial to delivering the UK’s targets and it won’t be cheap. The BVRLA’s recent Tax and the EV Transition report produced by Cambridge Econometrics estimates that a stimulus package of powerful tax incentives and grants could cost up to £95bn. And this comes at a time when the Treasury purse strings are under huge pressure already due to the impact of the Covid-19 pandemic.

The BVRLA believes that the current policy framework is successfully encouraging company car and salary sacrifice users to make the move to zero emission vehicles.

But for momentum to continue, fleets and their customers need to know what the tax and incentive framework will look like for at least the next four years.

At the fundamental level this is knowing what the Benefit-in-Kind (BiK) rates for battery electric vehicles will be beyond April 2025 and having clarity around plug-in and home charge grants.

2025 might seem a way off now but without certainty, there will be very real impacts. For the leasing sector, for example, without knowing what the BiK rates will be for the next four years, how can fleets provide full and accurate quotes on 48-month or longer car lease contracts beyond Q2 2021? These contract terms represent just over 40% of the market.

Looking beyond today, we also need a line of sight on what the future of vehicle tax could look like. With the prospect of fuel duty income declining, we know that the Government is considering what the future approach to vehicle taxation could and should be and road pricing is part of that discussion.

At the BVRLA, we are working hard to make sure that Government is aware of all the complexities around EV transition and our industry’s voice is heard when policies are being developed. Not just to protect the interest of our sectors, but also those customers who rely on it. For example, the current price premium on BEV vehicles makes them more expensive than the ICE equivalent, so even a small increase in tax rates will have a much larger impact on drivers.

We have been invited by the Office for Zero Emission Vehicles to help shape the UK’s Decarbonisation Delivery Plan, which aims to set out the path to 2030 and address critical milestones. The messages that we will continue to push to Government will include:

  • The need to continue engaging with industry to develop a long-term vehicle taxation strategy that creates the right environment to deliver a zero-carbon future.
  • Ensure that the right mix of incentives are maintained without unintended consequences, providing fleets and drivers with certainty around taxation.
  • Aim to make the current complex vehicle taxation environment simpler and fairer.

The three vehicle taxes that must be laid out between now and 2030 are fuel duty, Vehicle Excise Duty (VED) and BiK. If there is to be a transition to road pricing, direct charges levied for the use of roads, then the structure it would take, for instance distance or time-based fees or tolls, and any implementation dates will need to be in the public domain many years before introduction.

Issue 1, 2021 of EV Fleet World is out now.

Read the BVRLA's response to the 3 March Budget: BVRLA welcomes focus on Covid support and decarbonisation.