Chancellor Rachel Reeves Freezes Electric Car Taxes to Fuel UK’s Green Future
Chancellor Rachel Reeves recently announced an important decision to maintain the Benefit-in-Kind (BiK) tax rate for electric vehicles (EVs) as part of the Autumn Budget. This strategic move is aligned with the ambitious goal of the United Kingdom to have 100% of new car sales be electric by the year 2035.
The BiK tax is a well-known mechanism where taxes are deducted from employees’ paychecks as a form of salary sacrifice for utilizing a company car. For electric vehicles, the BiK rate will remain stable, increasing by just one percentage point annually until 2027/28, which is a notable contrast to the rates applied to petrol and diesel cars, which are set to rise every year and could reach as high as 37%.
Looking toward the future, incentives for electric vehicles under the company car tax scheme will continue beyond 2028. Additionally, there will be a deliberate hike in the disparity between electric and other vehicle types in terms of Vehicle Excise Duty (VED) rates starting in April 2025, which aligns with the strategy to boost electric vehicle adoption. All these measures are projected to contribute approximately £400 million by the end of the forecast period.
Reactions to this announcement have been largely positive. Transport Secretary Louise Haigh, alongside several other officials, publicly expressed support. This tax policy not only facilitates electric vehicle uptake by lowering the levies on less polluting vehicles but also reflects a commitment to environmental goals. Rachel Reeves emphasized these intentions, stating, “We want to support the take up of electric vehicles. So, I will maintain the incentives for electric vehicles in company car tax from 2028 and increase the differential between fully electric and other vehicles in the first-year rates of Vehicle Excise Duty from April 2025. These measures will raise around £400million by the end of the forecast period.”
Under the previous Conservative government, the BiK rate for electric cars was set at a low 2% for the 2022/23 tax year due to zero harmful emissions, whereas petrol and diesel cars bear as much as a 37% rate based on CO2 emissions. The current initiative under Rachel Reeves ensures that tax benefits for electric cars will continue until the close of the 2024/25 tax year, reinforcing the transition to greener alternatives.
Nevertheless, the policy has not been met without criticism. Paul Barker, editor of Auto Express, commented on the limitations of such incentives, saying, “Extending the company car benefit-in-kind and first-year Vehicle Excise Duty incentives for electric vehicles is handy from a transparency point of view, but won’t do anything to boost interest in a sector that needed a bigger initiative. And the huge rise in company car benefit-in-kind tax for hybrid cars from 2028 in particular is a real blow for that fuel type, and will ensure that only electric company cars are really viable from April 2028.”
Despite the tax advantages for company car drivers, everyday consumers receive less encouragement to purchase electric vehicles. John Wilmot, CEO of LeaseLoco, highlighted this issue by noting, “If the goal is to accelerate the adoption of electric vehicles and meet environmental targets, it’s essential to extend these incentives to the wider public.”
