Budget 2020

The AA is calling for an ‘electrifying’ Budget

Scrap the VAT and VED on Electric Vehicles

  • Calls for more incentives to boost electric car sales
  • Freeze on fuel duty brought in an extra £0.6 billion
  • Ringfenced pothole funding needed to improve road conditions
  • “Investing in EV battery technology is key” says AA president

The AA is calling for an "electrifying" Budget from the Chancellor next Wednesday (11 March 2020) to tackle climate change, unlock the nation's economic potential and improve road safety.

Previous analysis carried out by the organisation shows that the three main perceived barriers to EV ownership are; the purchase price of the car, the availability of public charging points and concerns about the distance a car can travel on a single charge (range anxiety). The AA believes that the Budget should be used to tackle these three issues.

Scrap the VAT and VED

At the centre of their requests, the AA believes VAT should be removed from the sale and leasing costs of new electric cars1. The AA first called for this in January and it is now supported by the SMMT. Previous analysis has shown that such a policy would be "influential" in helping drivers make the transition to a zero-emission car, with more than a quarter (28%) of low-income families saying it would be "very influential" in helping them switch to fully electric cars.

Similarly, Vehicle Excise Duty (VED) for electric cars should be exempt from the "Premium car rate" of £320 a year which is applied between the second and sixth year of the car’s life. Consumers are being put off from buying used electric cars as the rate is more than double the standard rate of VED (£145 p.a).

5,000 Rapid Charge points

Previous announcements from the Government have included; tap and pay solutions on all new rapid charge points from April 2020, new homes with dedicated off-street parking to have home charger capability installed and ensuring lampposts have EV charging capability. The AA feels the Chancellor needs to go further to tackle concerns about charging.

Two thirds (65%) of drivers say they would like to see the number of rapid charge points, which can provide 80% charge within half an hour, increase to more than 5,0002. Coupling these rapid charge points with affordable rates and ease of payment will go a long way to ease concerns about the lack of charging points.

The Office of Low Emission Vehicles has previously run a competition to tackle charging concerns in public places3. While this has unveiled some good innovations, urgent action needs to be done to alleviate concerns within on-street resident parking schemes. A recent AA survey found that around a fifth (18%4) of drivers park on the streets near their home and wouldn’t have access to a simple home charging solution. Therefore more work needs to be carried out with local councils and regional electricity companies to resolve the issue.

The time has come for the Chancellor to deliver an electrifying Budget
Edmund King, AA President
Build Gigafactories to create jobs, improve vehicle range and tackle recycling

In relation to range anxiety, drivers are initially looking for a vehicle which can achieve between 250 and 350 miles in a single charge. While the range electric cars can do is improving all the time, manufacturers have warned that a poor battery supply could stall the advancement of electric cars in the UK.

This is primarily due to how EVs could be manufactured with warnings that vehicles will just be shipped into the UK from Europe and across the globe5

The AA believes that more Gigafactories are needed to help improve secure the supply chain of EVs, boost research & development into vehicle batteries which will improve their range and tackle the end of life issues with batteries such as recycling.

At present, there are plans to build a Gigafactory in Coventry, but more will need to be built in order to help shift the nation into EVs by 2035. The Chancellor should take the opportunity to release the funds for at least three further Gigafactories which could help communities in South Wales, North East and the Midlands with employment opportunities and boost the economy.

Fuel Duty, potholes and insurance

The AA is also calling on the Chancellor to retain the freeze on Fuel Duty. Although it has been frozen at 57.95p a litre since 23 March 2011, but greater economic activity, a shake-up of Vehicle Excise Duty has given the Chancellor an extra £1 billion a year from motoring. Prime Minister Boris Johnson insisted he had "absolutely no intention” of putting up the levy during the election.

Comparing tax income 2010-11 with 2017-186, from the last time the Budget was presented:
  • Fuel duty: £27.3 billion v £27.9 billion = £0.6 billion extra
  • Vehicle Excise Duty: £5.8 billion v £6.2 billion = £0.4 billion extra

Additionally, an extra 2.5p a litre in VAT from higher-priced road fuel in 2018 and 2019 compared to 2015 and 20167, has burdened two-car households with an added £60 a year in tax (50 litres, twice a month x 12 x two cars). With 35% of the UK’s 27.2 million households8 having two or more cars, the additional benefit brought in £58 million more in VAT from petrol and diesel pump sales.

On insurance, the AA is warning the Chancellor to steer clear of an increase in Insurance Premium Tax (IPT). Currently set at 12%, the AA fears that any further increases in IPT would see the numbers of uninsured drivers rise to over a million and illegal "fronting" policies would rise as young drivers would be priced out of driving.

In order to help young drivers buy affordable insurance, the AA wants the Chancellor to set an IPT rate of 0% for newly qualified drivers who purchase a telematics insurance for the first two years after passing their test.

During the December 2019 election, the Prime Minister pledged the biggest ever pothole fund of £2 billion9, which the AA wants to see ringfenced so the long term upgrading of local roads is protected over the lifetime of this Parliament.

Edmund King, AA president says; "The time has come for the Chancellor to deliver an electrifying Budget.

"Clearly the Climate Emergency will feature heavily and drivers want to do their bit. Making it easier to swap a petrol or diesel car for an electric car needs to be at the forefront of the Budget and scrapping the VAT will do that.

"Likewise we need to end the concerns surrounding EV ownership, so more charging points particularly for those with no driveways, easier ways to pay and improvements to the EV supply chain will help.

"Investing in EV battery technology is key too as it will create thousands of new green jobs in engineering, manufacturing, recycling and Research & Development.

"Filling potholes will help tackle climate change too. Poor road conditions can be fatal for cyclists and as we encourage people to give up their car for shorter journeys we need to have the safest roads possible. Also replacing damaged tyres and wheels due to pothole damage also does nothing for the environment."

1. scrap-vat-on-electric-cars

2. Populus received 17,643 responses from AA members to its online poll between 10th – 17th December 2019. Populus is a member of the British Polling Council and abides by its rules

3. apply-for-innovation-funding.service.gov.uk

4. Populus received 17,190 responses from AA members to its online poll between 14th – 21st January 2020. Populus is a member of the British Polling Council and abides by its rules

5. “If batteries go out of the UK, then automotive production will go out of the UK”

6. Budget 2012Budget 2018

7. Average annual retail prices of petroleum products and a crude oil price index 

8.Percentage of households with cars by income group, tenure and household composition UK, financial year ending 2018

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