The Government is being urged by a leading fleet management specialist to make major changes to plans to impose a new tax burden on electric vehicle buyers in April.

Alphabet, which provides business mobility and services to the fleet industry, believes electric vehicles (EVs) should be subject to the Expensive Car Supplement (ECS), but at a much higher rate than petrol or diesel vehicles.

The ECS, dubbed by many the ‘luxury car tax’, was introduced by the then Conservative Government in 2017, imposing an extra £410 in annual Vehicle Excise Duty on all cars costing more than £40,000, with the supplement being imposed for five years after the initial first year’s payment. Hybrid vehicles were given a £10 discount each year, while EVs were exempted from the tax completely.

However in his Autumn Statement in October 2022 Chancellor Jeremy Hunt announced that from 1st April 2025 EVs would be subject to the tax. This sparked calls for measures to recognise the higher price of such vehicles, but the new Labour Chancellor Rachel Reeves made no changes in her budget statement of July 2024.

EV take-up in the UK has been struggling, particularly in the retail sector, fleet buyers effectively propping up the market thanks to attractive Benefit-in-Kind tax rates for company car users running an EV. And Alphabet believes imposing the current ECS threshold could further hinder the uptake of EVs.

According to Caroline Sandall-Mansergh, Consultancy and Channel Development Manager at Alphabet (GB), the Government is right to extend to ECS to include EVs, but it should be at a higher level than for petrol or diesel cars.

“I don’t believe the current threshold of £40,000 is at the right level,” Sandall-Mansergh said. “Based on a review of Alphabet (GB)’s data relating to 3,508 quotable vehicle models, our view is that it should be raised to £60,000.”

Alphabet wants ministers to then review the level annually, based on P11D values of the nationwide vehicle parc. “Our data reveals that the average P11D value of quotable petrol, diesel, hybrid and EV models reviewed is £51,855 – just over 25% more than the current ECS threshold.

“However, if you look at 961 of quotable EV models, the average list price is £60,273. And for 81% of quotable EVs that are listed over £40,000, the average P11D equates to £66,041 which shows just how much the threshold needs to shift to be truly reflective of the market.”

Different rates, but only for now

Sandall-Mansergh believes that raising the ECS threshold to £60,000 followed by annual reviews will see it gradually lowered as more affordable EVs become available. Analysis by Alphabet has shown that the range of EVs accessible to consumers for under £40,000 is currently severely restricted though it is known that cheaper models will join the market over the next few years.

She points out that end-users are already making decisions about their future car choices based on the current levy, and ignoring EVs as a result. The Government needs to implement change ahead of the Spring Statement in March 2025, and certainly before 1st April, which would be welcomed by the fleet and leasing industry and further assist the Government’s green mandate.

“Any delay to moving the ECS threshold is likely to increase drivers’ hesitancy and potential reticence from making the switch to EV, because including EVs from 1 April will mean increased cost of ownership,” Sandall-Mansergh said.

“There is a genuine concern that drivers will decide to stick with what they know, rather than look favourably at an EV, based on the numbers available to them now.”

She believes too that this stance is perpetuated by misinformation and negative mainstream media coverage, which does not show the context of owning an EV and the potential longer-term savings.

There are also fears that removing the ECS exemption for EVs will impact the fleet take-up of them, the one positive factor currently driving the market. “We know business users are largely driving EV adoption – therefore, operators with large fleets of EVs, which have previously been exempt, are now going to be carefully evaluating fleet composition and budget forecasts.

Look at the full picture

Fleet choices will also be affected by declining residual values, the result of heavy discounting of EVs by manufacturers trying to meet the requirements of the Government’s Zero-Emissions Vehicle mandate.  “It’s a ‘double hit’ with RVs worsening and the ECS exemption being removed – this will put a lot of EVs dramatically outside of grade.”

As fleet operators grapple with the upcoming changes, Sandall-Mansergh believes they must get their numbers right. “Many operators don’t take into consideration every element within whole life cost. For example, they don’t use an accurate ‘fuel vs energy’ comparison when comparing EVs and ICE vehicles.

“If the average contract is for 20,000 miles a year, the operator may not be able to distinguish between business and personal usage, meaning the difference could be huge.”

A further complication of calculations could be how the cars are charged – some end-users charge privately at home at rates that can be as low as 7p per kWh, while others use public infrastructure at anything from 70 to 80p, with a potential for significant cost implications.

“Operators should be reviewing the way they construct their car choice list to try to make it as reflective as possible of actual cost,” Sandall-Mansergh said.

“They need to ensure they’re taking a detailed and sophisticated enough view of every element to get accurate results – we know they can’t build a car list based on, for example, 25 different averages, but they must have something structured – and now more than ever it needs to be accurate.”