eVED: Bold Idea, Arse-Backwards Execution. How to Fix it.
Road pricing is a good idea, but not like this
In my time in this sector (will be 15 years in Feb) the UK govt has been consistently supportive to EV uptake, for which we must all be grateful. However, it has dropped the ball on 3 notable occasions:
Rishi’s 2023 row back on the 2030 date: Hugely damaging piece of messaging that materially harmed EV uptake, whilst leaving the ZEV Mandate commitments in place that meant the govt still had to encourage it.
2017 pre-announcement of reduced BiK rates: The govt consulted in 2016 on what to do with company car BiK rates for plug-in vehicles, after recognising the projected rate increases were too harsh at that time to encourage uptake. But instead of bringing their lower rates in immediately, they left the projected ramp in place (9%->13%->16%), signalling a drop to 0% in 2020. There is a reason retailers don’t tell you there will be a huge sale coming, particularly if they have any desire to keep selling today.
2025’s eVED announcement: The worst policy work in the EV space at least since the Govt pre-announced lower BiK rates 2.5 years. It’s probably worse, since they didn’t consult on price at all.
It wasn’t a total surprise, it was heavily trailed, and yet it is still shockingly badly implemented.
The right idea
Before we get into what makes this such a mess, let’s be clear where one should support the govt’s intention and rationale.
Mass electrification is going to deprive the exchequer of vast sums in fuel duty in years to come
We don’t just need cars to pay for being cars, fuel duty is ~2% of general taxation, it needs to be replaced
Road pricing is the only realistic way to address this gap, even if the mechanism is TBC (taxing electricity the same way as conventional fuel is not workable)
So far so sensible, the govt is taking a bold leap to implement road pricing - an inevitability - and should be praised for doing so.
A mess
So what went wrong? A combination of the following:
1. Perverse incentivisation mechanism
Fuel duty has been frozen, meaning there has been no negative impact on ICE cars. The govt has announced the introduction of a wholly new system of road taxation, a seismic change, but it has got itself into quite the position:
New tax regime just dropped:
ICE - 0p per mile
PHEV - 1.5p per mile
BEV - 3p per mile
This is clearly arse-backwards. Increasingly punitive the more the govt wants/needs you to use it.
Whether you like EVs or not, the govt is absolutely dependent on them being adopted at breakneck pace (see the challenging adoption curves of the ZEV Mandate and its ties to legally binding carbon budgets for a sense of urgency).
And for those tempted to say I’m wrong about fuel duty being frozen, as they announced future rises, behold my hilarious graph and colour me… sceptical:
The govts that cried fuel duty increases
2. Pricing level at this time
If we accept that we want to start getting EV drivers to pay something, maybe we should have a think about how much we should increase in their costs at this critically sensitive time of adoption.
Those who are reliant on public charging are already fighting hard to make EV driving more affordable than petrol, so 3p a mile will obviously make this much harder, impossible for some. But the govt might say they need to primarily consider the mass market of EV drivers.
Most EV drivers charge at home overnight, they can pay 7-9p per kWh on compelling Time of Use, or dynamic tariffs. Modern EVs typically do ~3.5 miles per kWh, allowing a little for public charging on top, and EVs cost ~3p per mile to run - for most drivers.
Maybe we want to work it up say 5-10% at the first dig? 20%? Bit punchy. 30-40%? That's big. Okay, 50% absolute tops, right… right?! Rachel? Not 100% in one go, Rachel!
Clearly govt has not thought about things this way. Someone at HMT/HMRC has instead used the pricing rationale of delivering 50% of what the fuel duty deficit would be at full EV uptake. In isolation this a hefty whack for the first instance, but there’s some logic there. Alas decisions shouldn't be made in isolation, the govt has other competing priorities.
The govt’s other priorities mean we need to really break the back of the adoption curve in the next few years. The OBR itself expects this measure to reduce EV sales by 440,000 itself - in context that's about 1 year’s current total sales. That alone should be sufficient red flag that this is an utter goat of a policy, at this time.
I’d really consider consulting on that one...
3. Process
The govt has made big moves in the EV space over the years, spending big on grants (the Electric Car Grant, the EVHS), shedding big tax revenues on fiscal incentives (BiK rates, Enhanced Capital Allowances), implementing blunt inorganic market interventions (2030 & 2035 dates, the ZEV Mandate), but all have come on the back of protracted consultation with representatives of the impacted stakeholders.
This time we’ve gone ahead and announced the pricing BEFORE consulting anyone at all. At the announcement of the price they launched a consultation on just the mechanism.
Er… wut?
Governing is hard
I am hugely sympathetic to govts. Policy is hard. Introduce bold new policy schemes - like road pricing - and you get criticised about the details by annoying people - like me. But was there a more sensible approach? IMHO - yes.
But this one is soluble
Fuel duty has become a toxic thing to change - fine, leave it frozen, at least during the ongoing brutal squeeze on living standards. You’re hugely likely to do this again as your oh so surprising rabbit-in-the-hat at the next Budget anyway.
But since you have the cojones to introduce a road pricing mechanism, let’s do it right. Do it such that:
All road users pay their way, including EV drivers
EV uptake is not significantly harmed
Pricing doesn’t hugely offend anyone
With a little bit of thought we get to the outcome that would have actually made sense:
A new road pricing VED supplement that applies to all cars @ ~0.25p per mile.
This achieves the goals, while increasing the cost to operate an EV by just ~8.33%, ICE cars by about ~1.5% but will still raise a meaningful amount of tax revenue. You can walk it up/amend it from there.
Of course, I might not have that number exactly right, it’s a ballpark figure. But you then announce that as the rate to be consulted on and launch the consultation on the mechanism AND price.
It may seem daunting to go for road pricing on all vehicles instead of just EVs, but by 2028 EVs are going to be a significant chunk of the vehicle parc (albeit less than they would have been prior to this announcement), you’re going to take roughly the same pain tackling just them as doing everything in one go.
The only good news here is that the govt still has time to reverse-ferret out of its mess, but it will take some political courage. It needs to find it.
