Why cutting VAT on EV public charging is vital
This week the FairCharge team and I met with The Treasury, lobbying for a reduction in VAT from 20% to 5% on public EV chargers. I know this may sound like a low priority given so many families and businesses are suffering real energy distress right now - but the ramifications of high public EV charging costs are far-reaching and serious. Current legislation levies 20% VAT on electricity from a public EV charger, compared to 5% charging at home. We know that most of the early adopter EV drivers charge at home, but over 30% of the population don’t have driveways, so if they have an EV (or aspire to own one) have no choice but to use public chargers and pay the higher VAT. But having no driveway also means they can’t access the lower night-time electricity tariffs offered by some electricity providers. No home charging means they’re being unfairly penalized – twice.
And with wholesale electricity prices – that’s what charge point operators pay for their electricity before adding VAT and their profit margin – soon rising to 75p per kWh, it means that those without driveways will be paying over £1.00 per kWh to charge an EV – which is perilously close to filling up with diesel. If we want to encourage more EV adoption – particularly among lower-income drivers – the 20% VAT levy will act as a disincentive to switch from combustion to electric. FairCharge and I explained to The Treasury that the unintended consequences of the higher VAT on public chargers are deeply serious, but I’m not sure they get it.
You see, if by continuing to enforce the higher rate of VAT on public charging, The Treasury unintentionally sabotages the growth in EV adoption, then the whole UK transition to electrification, cleaner urban air and energy security could be put at risk. If EV adoption stalls, then car makers may alter their EV production targets, charge point operators can’t make a profit and won’t invest in more infrastructure and all those battery factories that the UK needs won’t get built and we won’t benefit from new jobs, investment, and exports. And that’s an enormous concern. Brexit Rules of Origin dictate that a percentage of a car’s parts must be locally sourced to escape trade tariffs of up to 10%. A battery pack represents at least 50% of the parts in an EV. No U.K built batteries mean the car industry will move their factories somewhere else where they won’t have to face extra trade tariffs. That’s a potential loss of £8 billion to the economy and at least a million jobs. Now you can see why we’re worried.
It’s also worth adding that the current VAT legislation on the public supply of electricity was written in 1991 – nearly 20 years before electric cars were even a twinkle in Elon Musk’s eye – so it doesn’t reflect the enormous changes in the EV landscape. We’d argue that the legislation is so old it’s beginning to whiff and badly needs a review. Also, in this week’s energy price cap announcements from the government there was no mention of a cap on electricity prices at EV public chargers, so prices will only climb further.
FairCharge’s message is stark: if the Government and The Treasury don’t address this VAT anomaly and cap electricity costs for public charging, then they will inadvertently risk sweeping away a decade of hard work, waste the billions already spent in support of EV adoption, halt investment in charging infrastructure and prevent the development of an industry that will create thousands of clean, highly skilled and highly paid jobs that will help move our society closer to cleaner urban air and energy independence.
The UK has the talent and potential to lead the world in electrification. The Treasury must not be allowed to sabotage this bold ambition by hiding behind an outdated piece of VAT legislation written 20 years before electric cars were even on sale. FairCharge, with the help of Zap Map, has added up how much lowering the VAT on public charging would cost – £18.4 million at current rates of EV adoption – a relatively small cost given the hundreds of billions being announced to support energy prices this week. If we want a better future for our children with cheaper, sustainable energy and cleaner air, that historic transition begins with electric cars and advancing the technology of their batteries.