The Chancellor has reaffirmed Labour’s bid to ‘support take-up of electric vehicles’ in today’s Budget with a raft of announcements to boost demand as the government doubles down on its green commitments.
Among Rachel Reeves’ promises today include extending low company car tax incentives for EVs, fresh promises to bolster public charging rollout and significantly lower road tax than for equivalent petrol and diesel models.
Could any of the announcements convince you to go electric? We’ve take a look at each one in detail.
Low BiK rates are a huge benefit of EVs and make them perfect for company cars – and the Chancellor has now committed to maintaining this EV company car tax incentive past 2028
Low company car tax rates extended to 2030
What the Budget says
‘The government is setting rates for Company Car Tax (CCT) for 2028-2029 and 2029-30 to provide long term certainty for taxpayers and industry.
‘CCT rates will continue to strongly incentivise the take-up of electric vehicles, while rates for hybrid vehicles will be increased to align more closely with rates for internal combustion engine (ICE) vehicles, to focus support on electric vehicles’.
What this means for drivers
You pay Benefit in Kind tax (BiK) on electric company cars.
Existing low BiK rates are a huge benefit of EVs and make them incredibly appealing – and the Chancellor has now committed to maintaining this EV company car tax incentive beyond 2028.
Currently BiK is rising at a rate of 1 per cent a year; this year it’s at two per cent for EVs but by 2027/2028 BiK will be five per cent.
The government has now stipulated that appropriate percentages (APs) for zero emission and electric vehicles will increase by two percentage points per year in 2028-2029 and 2029-2030. This means EV company car tax rates will be 9 per cent at the end of the decade.
Currently for petrol and diesel high polluting cars BiK can range from 25 per cent up to 37 per cent. But these vehicle bands will increase by one percentage point per year in 2028-29 and 2029-30 to 38 per cent 2028/29 and 39 per cent 2029/30.
So while the cost of running an EV company car will increase by 2030, the gap between EVs and petrol and diesel cars remains hugely appealing for EV drivers.
Edmund King, AA president, said: ‘The AA welcomes continued incentives for EV drivers via an extension of the company car benefit in kind incentives for EVs to 2028 and increased differentials in vehicle excise duty for EVs. This will give incentives to go green.’
How much can you save with EV company car tax?
Company car tax savings for an EV versus a petrol car with emissions of 131g/km C02 – like a Skoda Scala (pictured) – are a massive £386.66 a month or £4,640 a year
Taking a £40,000 electric car as an example and a 40 per cent tax bracket employee, you can save thousands of pounds by choosing an EV company car rather than a fuel one.
The EV owner will pay in tax 40 per cent of two per cent of their £40,000 a year income.
This comes to £320 a year, or £26.67 a month.
A petrol car that emits 131g/km of CO2 such as a Skoda Scala SE will instead pay 31 per cent BiK this financial year.
31 per cent of £40,000 is £12,400, leaving a Scala-owning 40 per cent tax-bracket employee paying almost £5k a year (£4,960) in tax, or £413.33 a month.
That puts company car tax savings for an EV versus a petrol car at a massive £386.66 a month or £4,640 a year.
What about hybrid cars?
The government is bringing hybrids in line with ICE cars to give more incentive to EV uptake, with new brackets announced for hybrids too.
Cars with emissions of 1-50 g of CO2 per kilometre, including hybrid vehicles, will rise to 18 per cent in 2028-29 and 19 per cent in 2029-30.
Low first-year Vehicle Excise Duty (VED) for EVs
What the Budget says
‘The government will change the VED First Year Rates for new cars registered on or after 1 April 2025 to strengthen incentives to purchase zero emission and electric cars, by widening the differentials between zero emission, hybrid and internal combustion engine (ICE) cars.’
What this means for drivers
Until 2029-30, electric cars will pay the lowest first year VED rates of just £10.
The Conservative government in 2022 announced it would waive VED exemption for EVs, but Reeves has promised they will still be far less expensive to tax by committing to a £10 cap on first-year rates until 2030.
This is good news compared to less favourable first-year VED rates petrol and diesel cars have to pay, which will be doubled from 1 April 2025 as part of the Chancellor’s efforts to get more drivers to ditch combustion engines and go green instead.
For the second year, electric cars will have to pay a flat standard VED rate (that all cars pay) which is currently set at £190 for petrols and diesels and £180 for hybrids.
The ONS predicts VED input to the economy each year, and as half of all new vehicle sold in 2025 are expected to be electric, the government wants to start getting tax revenue from them to hit targets
How much will you save in VED with an EV vs a fuel car?
First year rates for hybrid cars and those producing 1-50g/km will increase from £10 to £110 for 2025-26. Other hybrids that fall under the 51-57 g/km of CO2 bracket will increase from £25 to £130 and all other rates emitting 76g/km of Co2 will double their current level for 2025-26.
So in the first year of owning an EV you’ll save at least £100.
Paul Barker, editor of Auto Express said: ‘Doubling first-year Vehicle Excise Duty rates for anything over 75g/km alongside big hikes for non-EVs below that adds a notable cost, especially for high-polluting cars over 255g/km that will now cost almost £5,500 in first-year VED alone.’
Many EVs like the new Ford Capri cost over £40,000 – in fact the majority do. Cars over £40k pay an Expensive Car Supplement of £410 from the second tax payment onwers
‘Tesla tax’ threshold for EVs could be increased
What the Budget says
‘The government recognises the disproportionate impact of the current VED Expensive Car Supplement threshold for those purchasing zero emission cars and will consider raising the threshold for zero emission cars only at a future fiscal event, to make it easier to buy electric cars.’
What this means for drivers
Owners of any new car with a list price exceeding £40k currently have to pay a £410 ‘premium rate’ charge on top of the standard rate of VED (from year two) for five years.
With EVs set to be hit with VED for the first time from 1 April 2025, they are also due to incur the same expensive car tax supplement.
However, electric cars are generally more expensive than equivalent petrols and diesel, with most costing in excess of £40,000. This is why the supplement has been dubbed a ‘Tesla tax’ on EVs.
And a recent report by Auto Express found that seven in ten battery-powered vehicles in Britain cost more than the £40,000, meaning the vast majority will incur the supplementary charge.
The Chancellors recognition that most EV buyers would be hit by the premium tax and is considering increasing the threshold could be good news for buyers and existing owners.
From 2030 onwards you won’t be able to buy a new petrol or diesel car in the UK and from 2035 onwards all new cars and vans will be zero emission – which removes the sale of new hybrids too
Commitment to 2030 ban on new ICE cars – and how its investing in the charging network to enable this
What the Budget says
‘The transition to electric vehicles (EVs) is crucial to decarbonising transport and will support growth and productivity across the UK.
‘The government has committed to phasing out new cars that rely solely on internal combustion engines by 2030 and that from 2035 all new cars and vans sold in the UK will be zero emission.’
What this means for drivers
Originally, the ban on new petrol and diesel cars was set for 2030, but government flip-flopping pushed it back to 2035 when Rishi Sunak was Prime Minister last year.
Labour ran on bringing 2030 back as part of its general election manifesto, and This is Money exclusively revealed that it would indeed accelerate the deadline as planned.
From 2030 onwards, you won’t be able to buy a new petrol or diesel car in the UK and from 2035 onwards all new cars and vans will be zero emission – which removes the sale of new hybrids too.
The most recent AA Recharge Report found that four in 10 homes do not have any form of dedicated off-street parking and are therefore reliant on public charging, calling for better rollout of local on-street charging like lamp post charging
Investment in EVs and the charging network
The government has announced it will invest £200million between 2025 and 2026 to accelerate EV chargepoint rollout.
In particular local authorities will be given funding to support on-street charging across England.
The Budget also confirmed a 100 per cent first-year tax allowance for electric vehicle charge points.
The most recent AA Recharge Report found that four in 10 homes do not have any form of dedicated off-street parking and are therefore reliant on public charging.
The AA called for the right rollout of charging speeds to the right areas, wanting to see more neighbourhood charging schemes such as street lamp upgrades, community charging hubs and investment in rural areas, instead of a focus on rapid and ultra-rapid chargers.
The Chancellor has also pledged £2billion over five years to support the automotive sector including the zero emissions vehicle manufacturing sector and supply chain, ‘providing the long-term certainty that industry need to invest in advanced, greener technologies’.
Mike Hawes, SMMT chief executive, said: ‘We welcome today’s commitment of £2 billion of automotive transformation funding as part of the government’s modern Industrial Strategy.’
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
