The Government has committed a massive £3.5 Billion to support the transition to zero emissions, but still shows a complete lack of imagination in how to spend these funds.
Initially, the Government focused on reducing the purchase price of new EV’s offering subsidies of 35% off the price of a new EV up to a maximum of £2,500 and to be fair 500,000 EV cars have been subsidised. However, this month at short notice the grant has been slashed to a maximum of £1,500 and the max value of a car reduced to £32,000. So, what’s going on?
Many observers believe that the subsidies just resulted in manufactures and car dealerships enjoying higher profits, as they maintained higher prices and offered fewer discounts on EV’s compared to “Internal Combustion Engine” (I.C.E) equivalents.
Car Executives shot themselves in the foot, in a recent KPMG Annual Global Automotive Executive Survey, with 91% saying they supported the grants but 77% saying that the switch to EV’s would occur by 2030 even without the grants. Not surprisingly the Government is looking to spread its spending elsewhere.
The removal of grants for what I regard as “Fake EV’s i.e., Hybrid’s with electric ranges of under 70miles will also not be missed. These Hybrids prey on range anxiety and can best be compared to nicotine patches that although they may help transition to EV’s may also slow it as drivers continue to burn fossil fuels because they don’t need to get into the habit of charging regularly. I think the Government is right to focus its subsidies on pure EVs with zero emissions.
So where could a more imaginative Government focus its subsidies?
The very tax-efficient Salary Sacrifice Scheme’s that incentivise employees to offer EV’s as part of remuneration packages do not work for lower-paid staff.
If you lease a cheaper EV via a SSS such as Mini, it will cost a gross £300 per month and would require an annual salary sacrifice of £3,600. A driver earning up to £50k pa would save 32% tax or £1,152 per year giving a net lease cost of £204, which is a very attractive deal that gives even better if you earn more than £50k as the tax-saving rises to 42%.
However, employers are not allowed to offer SSS EV's if the net effect is to reduce an employee’s salary below the national minimum wage which is broadly £17k per year. In effect, this means EV’s can only be offered to people earning more than £21k per year, removing a large element of younger people entering the labour market for the first time and a large number of bar, restaurant or shop workers.
If the Government wants to make EV’s more affordable to a wider base, why not give subsidies just to individuals earning less than £21k, so they can also lease EVs? Once a person has leased an EV its running costs are 1/3 of ICE cars, making them economic as well as eco choice.
The Government could also look at subsiding insurance costs for EV’s to make them a cheaper choice for younger people when they buy their first car.
Insurance costs, in general, are astronomical for younger people averaging between £1-2.5k for newly qualified drivers and are even worse for more expensive and faster EVs creating a major barrier to EV migration. If the Government offered 35% of insurance costs of EV’s for under 25’s it would be a major incentive to go electric and sensible driving could also be encouraged by linking grants to good driver behaviour as measured by the ubiquitous big brother black box’s insurance companies insist on these days
In general, younger people are more environmentally aware and willing if able to make the EV transition. Similarly, lower-income earners would benefit the most from the lower running costs of EV’s, but both will need targeted Government support to make the switch possible.
The current unimaginative Government Grants and Salary Sacrifice Schemes give a disproportioned award to higher-income earners and need to be rebalanced, to truly be of use in driving the EV revolution.