New car sir?
Sorry, we can’t sell you the one you want.
Do you want an electric vehicle instead?
Possibly you were still living under the delusion that we live in a free market economy; we don’t, at least not in the new car market. And this has nothing to do with Brexit, exports, or import problems as you may have thought. But also, would you have thought that the Government are deliberately reducing tax revenue? And increasing CO2 emissions by keeping older cars on the roads for longer?
The problem is that the Government has imposed market distorting, escalating, targets for sales of zero emission cars. This year those targets are 22%, rising to 80% by 2030 and 100% by 2035, and not enough people are buying EVs!
This could result in months of delay in taking delivery of the car of your choice.
This lack of popularity for EVs is making it a great time to buy them as manufacturers subsidise prices in order to try and meet their quotas. The “incentive” for them to discount is the threat of fines of £15,000 for each non-EV vehicle that exceeds the quota. Perversely, this is having a seriously deleterious effect on Government revenue as delayed car sales contribute massively to taxation with approximately £7bn in VAT on new cars as well as the wider economic implications.
With quotes from industry leaders that they are operating under a “state-imposed supply chain” (Vertu Motors CEO Robert Forrester) and with rising annual targets, the problem seems likely to get worse.
Current UK EV car sales represent 16.8% of all sales, which is a 10% increase on 2023. However, this is still a shortfall of 24% on the 2024 target. Targets will increase by 27% in 2025 from 22% to 28%, 18% in 2026 to 33%, 15% in 2027 to 38%, a whopping 37% in 2028 to 52%, 29% in 2029 to 67%, and 19% in 2030 to 80%. These dramatic increases currently look wholly unrealistic and unachievable. If that is the case, then there will be substantial disruption to the marketplace.
This raises the obvious question of whether there are any solutions to the situation?
I can see several options for Government, none of which will be popular with the industry or drivers, and some severely damaging to the economy:
1) Reduce taxation on new electric vehicles – VAT is currently 20% on all vehicles; Government could decide to reduce to the rate on electric vehicles. This measure would cost £billions a year. The Society of Motor Manufacturers and Traders (SMMT) has suggested halving VAT for three years.
2) Increase taxation on new non-electric cars – a progressive increase in VAT would cause a rise in inflation, it would reduce sales and would also increase the value of second-hand cars, probably extending their usage. It is unlikely to increase tax take, in fact it would probably also reduce it.
3) Concessions on Chinese EVs imports – much of the western world is slapping high tariffs on Chinese EVs. The EU has announced tariffs up to 48%, the US and Canada 100%. The UK have not yet decided. This is a horrendously complicated issue as cheap Chinese imports could badly affect domestic production but would also ease quota issues on non-EV cars. But with UK producers committed to retooling, the timing could be awful. The Chinese are thought to be targeting the UK and Norway as non-EU countries with the considered risk that they will flood the market with subsidised vehicles. The Government will also have in mind the likelihood of tariff retaliation by China on key UK exports, though China recently decided not to retaliate against French Brandy.
4) Modify the timescale or progression of EV target percentages. This seems unlikely whilst Ed Miliband is in charge.
5) Accept lower car sales for several years, with the consequent effects on the economy and extension in usage of older vehicles.
6) Subsidise the financing of new EVs – this would be quite straightforward, though potentially causing a bubble.
7) Further incentives and disincentives for fleet operators – this could help the transition to higher local production.
8) Or the Government could seek to solely rely on propaganda.
Further complicating Government considerations is the critical issue of replacing PRT (Petroleum Revenue Tax), which currently raises £27bn annually. I asked the then Chancellor of the Exchequer, Rishi Sunak, the question of how this was to be replaced, and his response was that the Treasury were working on it. Watch this space…
So, Government policy is targeting behaviour that will lead to a massive loss of tax revenue without any disclosed plan for replacing it. You may have asked yourself while reading this article, why I am writing this piece that has nothing to do with exporting. Well, because it does. The UK vehicle industry is a major generator of exporting and manufacturing income, and if the issues raised here are handled badly, the industry could be decimated.
It really is time for some joined up thinking.
Tony Goodman MBE
Useful links:
gov.uk/exporting
Made in the UK, Sold to the World
export.org.uk
britishchambers.org.uk
Tony Goodman MBE is a successful exporter and has been doing so through a variety of different businesses. He is currently Marketing Advisor at Forest and Co who specialise in offering guidance on branding, exporting and sales: www.forestandco.com
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