I’ve talked before about the cost benefits of electric vehicles. I mentioned on a previous post just how cheap I had found driving an electric car when we drove for 2,000 miles for the cost of half a tank of petrol.  

However, this time I want to talk about the way in which I think EVs don’t cost enough. And that’s tax.  

We drive 25,000 miles a year and pay no road tax and no fuel duty. We also pay very little VAT on the electricity we use to charge our car at home: 5% compared to 20% if you charge commercially when out and about.  

On the one hand, this is clearly an inducement to make the transition over to EVs, perhaps offsetting some of the higher initial cost of purchase. On the other, for wholesale adoption of EVs to be possible there needs to be massive investment into infrastructure and introducing a degree of taxation on EV use would support this.  

But it’s not straightforward. The Australian state of Victoria tried to introduce a tax on miles driven but it was recently overturned as unconstitutional. The details are too complex to explore here but the fact that the tax included miles driven outside of the state and covered plug-in hybrids (drivers of which are already taxed on the fuel they use) certainly had something to do with the failure of the scheme.  

As an alternative approach, Singapore taxes electric vehicles using a formula based around the vehicle’s electric motor power rating (plug-in hybrids are taxed on whichever is higher out of the electric motor power and the engine capacity) plus an additional flat fee to compensate for the fact that electric cars do not pay fuel excise duties. 

To my mind, a tax that accounts in some way for distance travelled seems logical. After all, if you’re a heavy user of the national road infrastructure you should surely be contributing to its upkeep. But this will not go down well with those who currently drive lots and pay very little.  

It will also be hard to implement and monitor: 

• We don’t MOT cars in their first three years. Therefore, maintaining accurate mileage records for each vehicle would be difficult. (In the scrapped Victoria plan they required photo evidence.) 
• There’s a privacy element around the government keeping track of drivers’ movements. Although you could argue that there are enough cameras already tracking number plates that it wouldn’t make much of a difference.  
• People who really care about cheating it will find workarounds, potentially dangerous ones. A client who lives in one of London’s LTNs (low traffic neighbourhoods) tells me that they regularly see motorbikes mounting the kerb and driving along the pavement to avoid being caught on the cameras, as well as cars with taped over number plates driving through restricted areas.  

I don’t really know the answer to the question of how we shake up the system of how cars are taxed, but we’re going to have to soon. In a recent survey, 47% of those who identified as middle class and 65% of those who saw themselves as upper class reported the intention to purchase a ‘new energy’ vehicle. And with an 18% growth in the sale of EVs in 2023 compared to 2022, the shift is clearly taking place.  

Nearly 20% of all new car registrations in December 2023 were pure EVs, and that number was closer to 35% in March and September, the new registration plate months. That doesn’t include plug-in hybrids which made up for an additional 8%.  

If these figures continue to grow, then the government will reach a point where they are no longer covering their revenues around vehicle tax, no matter how many additional penalties they apply to diesel and older petrol vehicles. Alternatives are needed and to my mind, it’s only fair that the wealthier vehicle owners who predominantly make up the current EV numbers (me included) should be paying into the system.