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Stagnant Electric Car Sales in UK Spark Calls for VAT Reduction

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In the United Kingdom, the automotive sector experienced a notable surge, with a nearly 18% increase in new car registrations last year, reaching a substantial 1.9 million registrations. This figure marked a significant upturn from the previous year’s 1.6 million and represented the highest level since 2019’s 2.3 million registrations. The uptick provides a welcome boost for the automotive industry, rebounding from the disruptions caused by the pandemic, including supply chain issues and a shortage of crucial computer chips that hampered production.

Amidst this positive development, the Society of Motor Manufacturers and Traders (SMMT) released annual figures that shed light on a less buoyant aspect of the market. While 315,000 new battery electric vehicles (EVs) were sold, indicating an increase of 50,000 from the previous year, their share of total registrations failed to show the anticipated growth. Constituting just 16.5% of the total, marginally lower than last year’s 16.6%, the EV market appears to be encountering a plateau in demand.

This lackluster expansion in the electric vehicle segment is somewhat incongruent with the governmental objective of phasing out petrol, diesel, and hybrid vehicles by 2035. Despite this goal, revised in September 2023 from the initial target of 2030, the transition is encountering resistance, as reflected in the current figures.

In response to this apparent stagnation in the electric vehicle market, the SMMT advocates for a reduction in Value Added Tax (VAT) on all new zero-emission vehicle (ZEV) purchases by half over the next three years. The proposed VAT cut, equivalent to an average of £4,000 per purchase, is anticipated to collectively save consumers £7.7 billion over the specified period. Furthermore, the SMMT posits that this initiative could contribute to placing an additional 250,000 ZEVs on the roads by 2026.

This upswing in overall registrations is predominantly attributed to fleet deliveries, accounting for over 1 million of all cars sold, representing a notable 38.7% increase from the previous year. Hybrid electric vehicles witnessed a rise, with 380,000 units sold over the year, constituting 20% of all new registered vehicles.

While the formal statistics present a promising outlook for the automotive sector, the SMMT’s call for a VAT reduction on new ZEV purchases reflects a strategic measure to invigorate electric vehicle sales. The proposal seeks to navigate a middle ground, fostering a transition toward electric mobility and aligning with the government’s environmental objectives. The coming months will unveil whether this proposed fiscal incentive will gain traction and effectively steer the trajectory of electric vehicle adoption in the UK.

 

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