In a move that signals the government’s direction of travel – to encourage people to buy smaller electric cars – its grant scheme for electric cars has been updated to target less expensive models.
It has also updated its grant scheme for vans and trucks – see story here
Reflecting the greater range of affordable EVs now available since the scheme started, it enables the scheme’s funding to go further and help more people make the switch to an electric vehicle.
From today (18 March 2021), the government will provide grants of up to £2,500 for electric vehicles on cars priced under £35,000. Previously, it provided £3,000 grants on electric cars priced at up to £50,000.
The move follows measures announced in the Budget on 11 March that the government will provide £403m for the plug-in car grant (PICG), extending it to 2022-23.
It adds that the rates of all of the plug-in vehicle grants are subject to review over time, depending on how the market develops. Says the DfT: “We will continue to review the grant as the market grows.”
Generous tax incentives, including favourable company car tax rates, which can save drivers over £2,000 a year, will remain in place.
The government has been clear since 2018 that it intends to reduce the plug-in car grant. It is retaining support for the switch to electric vehicles through other new investments. Today’s changes are the latest step in this.
It means that funding will last longer and be available to more drivers. Grants will no longer be available for higher-priced vehicles, typically bought by drivers who can afford to switch without a subsidy from taxpayers.
The number of electric car models priced under £35,000 has increased by almost 50% since 2019 and more than half the models currently on the market will still be eligible for the grant, including spacious family cars, such as the Hyundai Kona 39kWh and the MG ZS EV.
Government measures to encourage people to switch to electric vehicles are also working, with nearly 11% of new cars sold in 2020 having a plug. This was up from just over 3% in 2019 – and battery electric car sales almost tripled over that same period.
The plug-in vehicle grant scheme was renewed last year, with £582 million of funding intended to last until 2022 to 2023.
Transport Minister Rachel Maclean says: “We want as many people as possible to be able to make the switch to electric vehicles as we look to reduce our carbon emissions, strive towards our net-zero ambitions and level up right across the UK.
“The increasing choice of new vehicles, growing demand from customers and rapidly rising number of chargepoints mean that, while the level of funding remains as high as ever, given soaring demand, we are refocusing our vehicle grants on the more affordable zero emission vehicles – where most consumers will be looking and where taxpayers’ money will make more of a difference.”
Car models changing as technology delivers
More affordable batteries mean that manufacturers can increase the range of the vehicles, including the VW ID.3 Pro (from £32,000 RRP) with a 263-mile range – more than the distance between London and Middlesbrough. This is more than three times the typical range available when the plug-in car grant first launched in 2011, thanks to steep falls in battery costs.
As the market develops even further, the government says it expects further price reductions in electric vehicles.
For analysts of the EV scene the effects on manufacturers’ pricing will be closely watched. In the same way as business car tax (through Benefit in Kind BIK) manufacturers tend to ‘tweak’ prices this trend might happen in the EV arena.
One model to watch will be Tesla’s Model 3, priced from £40,5000, meaning it is now excluded from the grant. Consistently the UK’s best-selling electric car over the past year, any price movement will be an indication of its ambitions. However, it is currently to build enough cars to meet demand, but plans to scale-up production.
The plug-in car grant was introduced 10 years ago to stimulate the early market for zero emission vehicles.
Since 2011, government has provided £1.3 billion in plug-in vehicle grant funding to bring ultra-low emission vehicles onto UK roads, supporting the purchase of more than 285,000 vehicles.
The government is also investing more than £15 billion of new money in alternatives to cars, including:
- £3 billion for buses
- £2 billion for cycling
- more than £4 billion for local transport in cities
- £5 billion for enhancements to the rail network, including electrification and reopening lines closed under the Beeching cuts
Plug-in grant history so far
The plug-in car grant scheme has been in place since 2011 to support the uptake of ultra-low emission vehicles.
The grant rate was originally set at £5,000 for all eligible ultra low emission cars. In 2018, the grant was changed to focus on zero-emission cars. The PICG has supported over 200,000 ULEVs of which over 100,000 are zero emission vehicles (ZEVs)
To date, the plug-in car grant has provided over £800 million to support the early market for ultra-low emission vehicles, which now represent almost 6% of the new car market.
Of this, over £450 million was spent on ZEVs, which now represent almost three percent of the new car market
The move is criticised by car manufacturers’ trade body the SMMT. CEO Mike Hawes, says: “The decision to slash the Plug-in Car Grant and Van & Truck Grant is the wrong move at the wrong time.
“New battery electric technology is more expensive than conventional engines and incentives are essential in making these vehicles affordable to the customer.
“Cutting the grant and eligibility moves the UK even further behind other markets, markets which are increasing their support, making it yet more difficult for the UK to get sufficient supply. This sends the wrong message to the consumer, especially private customers, and to an industry challenged to meet the Government’s ambition to be a world leader in the transition to zero emission mobility.”
Logistics UK’s Head of Public Policy Michelle Gardner said: “Switching to zero and ultra-low emission vehicles is an important focus for the logistics industry, as it works to achieve the government’s zero emissions target by 2050.
“It is therefore disappointing to see the changes announced today to the government’s plug in car, van and truck grants, which have been reduced for the vast majority of available models.
“Logistics UK’s members are committed to making the switch to alternatively fuelled vehicles, but with the market still to reach maturity, options are limited for operators and reducing the financial support will hinder this transition.
“After the financial impact of the COVID-19 pandemic, to enable operators to make a change within the lifecycle of their normal vehicle, it is imperative that government lays out a clear policy road map to enable operators to invest confidently, while encouraging manufacturers to develop and launch a wider range of suitable vehicles.”