Higher EV volumes will drive wider growth
Growth is a core UK government mission, and making it happen amid intense economic challenges requires ambitious action. Next week’s Spring Statement provides an opportunity for the chancellor to do just that and set out fiscal measures that boost the country’s prospects. The UK automotive sector is perfectly placed to deliver growth, provided the right conditions are in place – conditions that are critical for our sector as it faces multiple global headwinds whilst trying to deliver a “once in a century” technological transformation.
A strong new car market for all models and EVs is essential for overall growth, and what matters is volume – not notional mandated percentages. We have to convince the ‘electric sceptics’, therefore, to switch. The industry is offering massive discounts but these cannot be maintained indefinitely, so consumer incentives, and the removal of disincentives, are the necessary next steps in the transition. Exempting EVs from the VED Expensive Car Supplement, due to apply from April, would be a clear and sensible move. Ploughing on with a measure that treats EVs as luxuries, rather than fundamental to mobility and decarbonisation, risks pulling the handbrake on demand just as we need to accelerate.
But creating the necessary impetus in the market needs more ambitious fiscal measures. As the latest modelling by SMMT suggests, halving VAT on new EV purchases would be highly effective – driving up demand by an extra 15% on top of current outlooks to put some two million EVs on UK roads by 2028. In the last five years, government has already accrued a £2.5 billion VAT receipt windfall thanks to EV uptake increasing tenfold, so there is headroom.
While the measure would incur a temporary cost to the Treasury, the returns would be significant, with higher volumes of EVs directly boosting businesses across the wider industry – infrastructure providers, insurance and energy services, the maintenance sector and the second-hand market. The environment, of course, would significantly benefit too with a CO2 reduction worth 6Mt a year – equivalent to cutting UK aviation emissions by a sixth.
A higher volume market also makes investing in the manufacture of products in the UK, rather than abroad, more attractive. Automotive manufacturing will be a critical consideration in the UK’s pending industrial strategy, as well as its upcoming trade strategy, given the huge global potential of the automotive sector, already one of Britain’s largest exporters of goods.
Exporting to new markets is not always easy, and we are seeing the global trading environment getting tougher. The role of the UK government’s Board of Trade, an institution that is fundamental to the country’s trading strength, is as critical as ever so I look forward to working with the secretary of state for business and trade, and fellow Board members, to help Britain’s businesses expand their export potential, invest in innovative products and services, and take them to new customers around the world.