Author: Mark Sutcliffe, content and communications strategist
Peer reviewed by Kate Laing, senior manager, zero emission areas at C40 Cities and Jack Holland, head of northern Europe – business development at Padam Mobility.
The cheapest electric cars on sale in the UK are currently priced upwards of £20,000. Combine that with increases in the cost of public charging and there’s a substantial risk that electric vehicles (EVs) will be seen as only for wealthier motorists who can afford to make the switch and benefit from lower running costs.
This perceived iniquity could be weaponised to open a new front in the culture wars in which EVs are seen as the preserve of wealthy metropolitan eco-warriors leveraging their wealth to benefit from company car tax incentives, the zero road fund licence and ULEZ (ultra-low emissions zone) exemptions, while ICE (internal combustion engine) drivers continue to get clobbered by high fuel prices and faltering second-hand values of ageing diesel cars.
The issue is further complicated by the fact that less affluent motorists are more likely to be living in flats and terraced housing and may be unable to charge an EV at home, while the better off will be driving expensive EVs and charging them on their driveways for less than 10p per kWh.
A new report by Transport for the North estimates that 3.3 million people – 21.3% of the local population – are at risk of transport-related social exclusion with high levels of car dependency identified as the key driver, exacerbated by declining bus service provision.
In the medium term, switching to an EV is simply not a viable option for millions across the UK who are at risk of ‘transport poverty’.
Kate Tyrell, co-founder of ChargeSafe, which rates the quality and accessibility of charge stations across the UK, says: “In some quarters of the media, EV drivers are already being portrayed as smug, middle-class penny-pinchers cashing in on Government subsidies.
“Unless EVs are seen to be more affordable and accessible, these memes could become entrenched and this risks stalling the recent acceleration in uptake as less well-off motorists shun EVs.”
Choice is improving
Zap-Map co-founder and chief operating officer Melanie Shufflebotham says: “How many people can realistically afford £40,000 or more to buy an EV? With the launch of models like the Peugeot e208 and MG’s electric range, choice is improving, but we need a choice of 20-to-30 EVs priced at less than £30,000 before your typical family motorist begins to believe they are an affordable alternative to ICE cars.”
The recent surge in energy prices has made the issue of levelling the charging playing field still more complex.
Not only has the rising cost of electricity reduced the hitherto clear-cut running costs advantage of EVs compared with ICE vehicles, it has also increased the differential between the cost of charging at home and using public or workplace chargers.
Shufflebotham adds: “The steep hikes in energy prices, combined with levelling off of pump prices, have narrowed the gap between EVs and ICE, but on a pence per mile (ppm) basis, charging an EV continues to be significantly cheaper than filling up a diesel or petrol car.
“While these premium charging rates do close the gap between EV and ICE ppm rates still further, it’s also important to point out that most EV drivers will do the majority of their charging at home or the office, where the costs are much lower.”
Niall Riddell at Paua, which provides consolidated chargepoint access and billing to company car fleet operators, said the convergence of the fuelling/charging costs between ICE and EVs had the potential to slow the adoption of EVs as the TCO (total cost of ownership) advantages became less clear amid uncertainty over the long-term trajectory of energy prices.
“There are more factors than purely cost at play,” says Riddell.
“The air quality advantages – particularly in cities – are increasingly cited by drivers who make the shift and many converts prefer the way EVs drive.
“But, if you believe that EVs are central to the decarbonisation of transport, then it’s important they are accessible to as many people as possible without penalising them through excessive levels of taxation.
“The huge increase in the uptake of salary sacrifice schemes to provide employees with EVs indicates how much can be achieved by a benign tax framework. But, in other areas, HMRC seems to be missing the mark.
“As we see the cost of rapid charging rise above £1 per kilowatt on some networks, VAT on public charging really needs to be equalised with domestic tariffs and against this backdrop of steeply rising costs of charging, the 5ppm Advisory Electricity Rate for reimbursing drivers for mileage driven in EVs seems in need of urgent review.”
EVs now cheaper than ICE alternatives
Research by international leasing company LeasePlan across 22 countries concludes that the EVs are, on average, around 5% cheaper to own and operate using a wholelife cost or TCO benchmark.
The main savings are derived from tax incentives and significantly lower energy costs.
As it stands, one of the largest components in the TCO matrix – depreciation – still favours ICE vehicles given an EV’s higher cost of initial purchase, but some analysts believe this factor will shift in favour of EVs as retail prices fall and resale values strengthen as demand for used EVs increases.
And, according to insurer LV, even brand new EVs make financial sense for private buyers who can’t access a company salary sacrifice scheme.
LV research found that three of the 13 electric cars evaluated (Nissan Leaf, MG5 Long Range Excite and the Mini Electric Level 1) were cheaper than ICE rivals whether they were purchased outright, leased or bought via PCP (personal contract purchase).
Although the other electric cars evaluated were more expensive to buy outright than ICE equivalents, all 13 were cheaper to run over a period of seven years, with total savings over that ownership period ranging from £586 on a Fiat 500e to £10,585 on a Tesla Model 3.
But, despite the savings available over the lifetime of a vehicle, for the majority of drivers, high purchase prices and a limited choice of quality used EVs represent a major obstacle to EV ownership.
The challenge for the automotive and finance industry is to increase awareness of innovative EV leasing models that accurately reflect the lower costs of ownership and make it more cost-effective for shared or flexible ownership models such as car clubs and spot rental to become more widespread.
But, to encourage this shift, many commentators believe the Government needs to reform the entire motoring tax regime to encourage modal shift away from private car ownership towards a more diverse mobility landscape that incentivises shared mobility and active travel.
Such a review seems inevitable given the Government’s gradual loss of VED (Vehicle Excise Duty), fuel duty and VAT revenues precipitated by the shift to EVs and will almost certainly need to revisit the thorny issue of road pricing.
Debunking EV myths and calling out fake news
While EV owners tend to be quite evangelical about making the switch to electric motoring, scepticism about EVs still persists.
Earlier this year, the UK Government published a fact check document which debunked many of the myths still in circulation about EVs, including:
■ Electric vehicles are too expensive
■ Only people with off-street parking will be able to easily charge their EV
■ There are not enough charge points to meet demand
■ It takes too long to charge an EV.
The removal of the plug-in car grant (PiCG) in June marked a switch in the Government’s focus after criticism that it simply subsidised wealthier drivers to buy premium EVs.
Announcing an end to the scheme, the Department for Transport pointed out that the savings of switching to an EV actually outweighed the value of the grant and confirmed a £300 million scheme to incentivise sales of electric taxis and vans and a renewed focus on improving the public charging network.
The new challenge for the Government is to better target fiscal incentives to make EV ownership more attractive to motorists on lower incomes.
Making EV charging more equitable
An estimated 40% of UK households are unable to charge an EV at home and the electric divide is widened further by unequal access to charge points. Wealthier EV drivers in the suburbs and commuter belt can charge at home and benefit from cheap overnight electricity and 5% VAT, while those living in terraced houses or flats without driveways must pay up to £1 per kW at a public charge point plus full rate (20%) VAT.
Equalising VAT rates would go some of the way towards redressing this imbalance, but separating out the EV charging element of domestic energy bills and applying a higher rate of VAT to that is fraught with complexity.
Reducing the rate of VAT paid by the operators of public charge points would be a simpler solution, but the Treasury is unlikely to give up this revenue without a battle.
There is a clear consensus for equalising VAT on domestic and public charging.
Johann Beckford at think tank Green Alliance says addressing the disparity is a question of social justice while Richard Dilks at Connected Mobility says the preferential VAT treatment of domestic charging is a subsidy for those who need it least.
ChargeSafe’s Tyrell says: “VAT on charging either needs to be equalised across domestic and public chargers at the 5p rate or levelled out at 10p.
Disruptors like Instavolt, Gridserve and Osprey have come in to challenge the dominance of existing forecourt operators, but, after the steep rise in energy prices, they are being forced to increase their charging rates and the additional 20% VAT makes these increases seem even steeper.”
Salary sacrifice explosion
One area in which reform of the tax regime has prompted a large increase in EV uptake is in the company car sector.
Changes in benefit-in-kind (BIK) tax announced in 2017 have made EVs a tax-efficient choice for drivers who want to switch to an electric company car.
While the changes made funding an ICE vehicle through salary sacrifice far less attractive, the new BIK regime has triggered a marked acceleration in company car drivers opting into EVs.
Arval, one of Europe’s largest leasing companies, has seen 280% growth in its Ignition Salary Sacrifice leasing business – with EVs accounting for 80% of new business in the UK.
Arval consultant Richard Cox says: “Salary sacrifice fits not just the needs of people who would like a company car and do not currently qualify for one, but also employees who have taken a cash allowance option and are looking for alternative car provision.
“These schemes provide a range of genuine advantages to employers and employees, with no real downsides or compromises.
“Moving drivers out of ICE vehicles into EVs can save them as much as £2,000 in tax each year and also have a significant impact on their employer’s overall carbon footprint.”
The rapid uptake of EVs in the corporate sector will begin to increase the supply of quality used EVs into the second-hand market, helping it to mature more quickly.
While high resale values for EVs may disappoint prospective buyers looking for a used bargain, strengthening residual values and increasing demand for EVs in the face of restricted supply of new cars has seen an increase in used vehicle leasing.
Arval sees the buoyant demand that is keeping used values high as an opportunity to offer de-fleeted ex-company EVs as a retail proposition.
“Residual values are obviously subject to market sentiment, but second-hand EV prices are holding up well and we see a positive long-term outlook for used EV prices,” says Joel Lund, commercial director of Corporate, Retail & Partnerships at Arval.
“This makes used EVs an attractive proposition for second-hand leasing – or ‘Re-Leasing’ as we call it.
"We see a big opportunity here to reach ‘EV-curious’ drivers who aren’t ready to commit £40-50k on a new EV to ‘try before they buy’.
For example, Arval’s Autoselect remarketing website currently has a good selection of low mileage EVs at monthly rental rates starting as low as £322 (including VAT) over two years/20,000 miles for a Volkswagen e-Golf. This compares favourably with a petrol Volkswagen Golf 1.5 TSI at £314 per month over the same period.
Alongside the established leasing companies, a new wave of start-ups offering EVs on subscription is making inroads into the corporate and small-to-medium enterprise leasing sector.
These disruptors typically offer a bundled leasing package which includes a vehicle, access to charging networks, and, in some cases, insurance, servicing and maintenance for a single monthly subscription payment.
Instead of the traditional leasing models of two-, three- or four-year contracts with early termination penalties and excess mileage charges, these subscription services tend to comprise rolling contracts which can be cancelled at a month’s notice.
Subscription service Onto operates a fleet of 7,000 EVs and is deliberately targeting a younger demographic.
The majority of Onto customers are aged between 25 and 45 and typically live in large cities.
Of these, 80% are couples with children and 90% are driving an EV for the first time.
Typical subscriptions start at less than £500 for a Renault Zoe, rising to £1,299 for a Jaguar I-Pace and, while these still seem high, when compared with traditional lease contract, Onto chief executive Rob Jolly believes they represent good value for money with younger customers who tend to prioritise flexibility ahead of owning a depreciating asset.
“When you add the initial payment that traditional lease products require onto the monthly payment, and the access to multiple charging networks and insurance, on a like-for-like basis, our monthly subscriptions are competitive,” says Jolly. “And, because our customers tend to be more invested in doing the right thing for the planet, they are prepared to pay a premium for doing their bit for the environment.”
From individual ownership to shared mobility
Many analysts in alternative mobility believe the Government has to do more to replicate the success of salary sacrifice schemes.
Ben Lawson, vice-president strategy Europe at Enterprise Holdings, says: “Using the company car tax system to encourage company drivers into EVs is working well, but leasing is not necessarily the solution for the private user.
“In the same way that the company car tax system has been redesigned to change choices and behaviour, we believe the Government needs to introduce a mobility taxation system that incentivises people to make more sustainable transport choices.
“Otherwise, we risk a situation emerging where the lower socio-economic groups who own older diesel vehicles are going to be hardest hit when clean air zones (CAZs) come into effect in towns and cities, while there are few equitable solutions accessible to less well-off drivers to solve the problem CAZs are designed to address.
Lawson says that conventional scrappage schemes are not appropriate, because “even with a generous scrappage grant, millions of people still won’t be able to afford a new EV”. Enterprise believes scrappage allowances need to be employed to target genuine modal shift, enabling those who trade-in ICE cars to be offered mobility credits to be used to pay for public transport, micro-mobility, car share and car club membership.
Lawson adds: “We see electric car clubs as a gateway for people to access an EV as and when it’s needed because people who don’t actually own a car are more likely to use other modes of transport provided they have on-demand access to a vehicle.
“For some families that might mean ditching the second car because it only gets used once a week, while others may decide they don’t need a car at all because the alternatives such as e-bike hire or improved public transport meet their needs. It’s about providing access to the right mode of transport at the right time.”
As things stand, employers who try to offer employees occasional access to a car – or for that matter a bike or scooter – so they don’t feel the need to own a car, risk saddling those employees with a disproportionately high BIK tax bill because they are taxed as an employee benefit.
Lawson says: “One of the most important aspects of the Mobility as a Service (MaaS) trials we have been involved with in Scotland and Coventry is their ability to improve the visibility of alternative modes of transport – improving access to active travel or shared mobility solutions and enabling them to make better informed travel choices.
“We’ve sought HMRC guidance about the tax treatment of some of the innovative mobility solutions we would like to trial and, while it is sympathetic to what we are trying to achieve, it is emphatic that, under the current rules, some of these solutions would be considered benefits in kind and taxed accordingly.”
He concludes: “We’re not suggesting HMRC should tax people less, we simply believe the tax burden should be redistributed – something which is already on the table because the Government needs to replace revenue from the Road Fund Licence and fuel duty which will be lost as more people migrate to EVs.”
Connected Mobility’s Dilks says: “We really shouldn’t be trying to replace those 33 million ICE vehicles with EVs. All our research indicates that increasing car ownership leads to increased use, but if we reduce ownership through car-sharing, car use also falls.
“EVs are already really popular in car clubs, but we have seen few incentives from the Government to help us make the switch.
By 2032, the car club fleet will need to be 100% electric, but, for that to happen, the charging infrastructure needs to be miles better.
“Despite EVs’ lower running costs, the practicalities of ensuring a car club fleet is fully charged and ready for customers to use makes running EVs more expensive because of the higher staffing costs involved in keeping the cars charged. As it stands, the charging network just isn’t improving quickly enough for our needs, largely because the charging network is evolving to meet the requirements of private owners.”
Stephen Frost, co-author of an Institute for Public Policy Research report on fairly reducing car use in Scotland, suggests that tweaking taxes and charging some motorists to drive into CAZs could be more divisive than blanket restrictions such as those currently being trialled in Oxford.
“In our research, the vast majority of people understand the urgency of redesigning our transport system to meet our environmental goals, but bringing the public with you is more challenging if climate policy looks like it favours the wealthy or big business.”
He adds: “People don’t think you should be able to buy your way out of causing social or environmental harm.
If something is bad should it be banned or should we be allowing people to pay their way out of it?
If the plumber driving a 10-year-old diesel van which is essential to their job feels climate policy actually benefits the company director driving a premium executive EV, then there’s a risk that this fuels anger and resentment and makes it harder to convince people that things like CAZs are an equitable way to address the climate crisis.”
Frost feels that we are going to need a national model of motoring taxation that is implemented in consultation with the public and will almost certainly involve a smart road pricing mechanism that incentivises all sustainable forms of transport – not just EVs – to address the challenges of congestion, air quality and carbon emissions.
He said: “That EVs will be part of a decarbonised transport system in the future is a given, but the automotive industry needs to focus on producing, smaller, lighter, more efficient vehicles that are more easily shared among multiple users.
“Perhaps the most equitable solution is to ensure that everyone has access to one of these vehicles whenever they need it, without actually owning it, and perhaps treating this access as integral to the wider public transport system.”
Frost adds: “This liberates those who can afford a car, but would rather not own one, and extends access to those who can’t afford a car, but would really benefit from one for some trips.”
By Kate Laing, senior manager, zero emission areas, C40 Cities
We’re reaching a critical moment in human history with an urgent need for solutions that allow each of us to do our part and cut emissions so we can all continue to thrive.
This is particularly important in world cities.
Globally, more and more people are moving into urban areas to take advantage of economic opportunities and cities are responsible for more than 70% of global carbon emissions, a portion of which is from transport.
Electric vehicles (EVs) are one of the key solutions in the transition to zero emission mobility and it is essential to accelerate the take up of zero emission vehicles, alongside accelerating more walking, cycling and public transport trips, in ways which ensure safer streets, cleaner air and more equitable transport systems.
This article highlights some of the tensions being experienced in the transition towards EVs and the complexity for government in designing the right incentives to support and accelerate the transition in a way that does not create an unfair playing field.
EVs are, on average, around 5% cheaper to own and operate using a wholelife cost or total cost of ownership (TCO) benchmark. Yet the range and number of models available is small and the upfront cost of an EV is relatively high compared with an internal combustion engine (ICE) vehicle.
Charging an EV is cheaper than filling up a diesel or petrol car on a price per mile travelled comparison, despite the recent dramatic rise in energy prices and levelling off of retail fuel prices which have narrowed that gap.
These are the primary reasons why high mileage users such as freight and taxi operators, not to mention city bus fleets, are leading the transition across to EVs. The commercial business case for transition is favourable.
However, the next few years are critical to shaping the take up of zero emission mobility alternatives for ordinary citizens and provide options for those.
This article highlights that there are particular inequalities arising between different private users because of variations in tax treatment.
There is a clear need to ensure the tax system keeps pace with the transition to zero emission.
This is also reflected in research released by Campaign for Better Transport last month which found 60% of people believe vehicle taxation needs reforming and half supported replacing fuel duty and vehicle excise duty (VED) with pay-as-you-drive.
They found that framing the need for reform around fiscal responsibility and fairness between EV and ICE drivers would resonate with the public and 69% of people would be more supportive of pay-as-you-drive if public transport was made more affordable and better-connected (for example with revenues from reformed road taxation.)
Government can also design more holistic incentives to increase sustainable mobility choices and equitable outcomes.
For example, in Barcelona, you are able to scrap a dirty vehicle in return for a three years’ free public transport.
Madrid was a pioneer in dedicated free on-street parking in spaces with EV charging for car share schemes to reduce the need for citizens to own a vehicle outright.
The challenges continue to be a limited supply of EVs and high model prices.
This requires regulation to incentivise manufacturers to accelerate the delivery of EV models to market.
Transport & Environment (T&E) released a report recently highlighting that consumer demand continues to outstrip supply in Europe and carmakers can be expected to prioritise supply to markets with more ambitious regulatory incentives (for example, the US, which has recently implemented a zero emission vehicle mandate).
This will maintain high prices for electric vehicles and the limited number of models available.
At present, T&E predicts that if EU carmakers produce only the minimum amount of battery electric vehicles (BEVs) as required by current regulation, consumer demand will not be met.
A BEV sales stagnation is bad news for an equitable transition and for climate overall.
Kate Laing has more than 13 years’ experience working in close partnership with city officials building sustainable urban transport systems. Her focus is on the 35 cities, including London, who have signed the C40 Green and Healthy Streets Declaration. At present, she manages the C40 Cities zero emission areas programme supporting signatory cities to achieve the goal to establish a significant area of each city as zero emission mobility by 2030.
By Jack Holland, head of northern Europe – business development, Padam Mobility
The ban on buying new petrol and diesel cars and vans comes into effect from 2030.
This article highlights the huge amount of work needed to be done by the Government to incentivise people to swap from internal combustion engine (ICE) to electric vehicles (EVs) in the next eight years.
The key themes throughout the article highlight three core topics around conversion to EV: affordability, government incentives and replacing traditional single ownership models.
The affordability of an EV is the central issue for the general public, especially with the current cost-of-living crisis.
As highlighted by Mark Sutcliffe, the cost of an EV is more expensive in the first two-to-four years, and, in some cases, is more affordable from around year five onwards.
Does more work need to be done to outline the economics of owning an electric car?
One interesting concept that manufacturers and consumers are starting to really explore is ‘mini-mobility’, traditionally known as quadricycles.
This is the middle ground between micro-mobility (e-bikes, scooters, etc) and the private car.
These are very small electric cars, often with two seats and with speed/range limitations.
Additionally, they are usually significantly cheaper. For example, the Citro ën Ami (28mph speed limit, 43-mile range) is priced at a little less than £8,000.
In the UK, they can be bought on a two-year PCP for £20 per month (£2,700 upfront) and driven with a provisional licence. Other makers are bringing out similar vehicles with more power for faster and longer journeys.
These could work well in urban environments for households of two or fewer people. Theycould also work well as second cars or car club vehicles.
In terms of the role of government in this shift; it will be vital that political leaders and departments work cohesively to ensure that the ‘carrots’ and the ‘sticks’ are applied at the right time, and focused on the right socio-economic groups.
As the article mentions, the difference in the VAT rates is one quick win to aid the socio-economic factors at play of owning an EV.
It is clear there will be changes to the vehicle excise duty (VED) at some point in the short-to-medium term and the timing of this will be critical.
Could there be grants available specifically for low earners or households without a driveway?
Will there need to be a certain level of public chargers available before the VED tax changes?
Potentially, the answer could be a truly transformational programme of public transport schemes undertaken to ensure that we do not simply replace ICE cars at a ratio of 1:1.
As the article concludes, electric cars are not a ‘silver bullet’; they should only be viewed as a part of the solution.
While it is true that they help to reduce the carbon effects of single car ownership, they do not remove the lifestyle damaging aspects of the private car - i.e. congestion, road traffic incidents, time spent driving, car-centric urban planning, etc.
This period of change for the car could also be the perfect time to substantially change transport habits.
The emergence of new digitised transport modes could help to reduce car reliance, such as car clubs, e-scooters, bikeshare, demand responsive transport, cargo bikes, etc.
This could see two-car households reduced to a single car.
These modes also assist first- and last-mile solutions to the core public transport network.
However, substantial public funding will be needed, at least two to three times what is currently being spent to see double digit modal-shift.
Jack Holland has spent his career in the transport industry in operational and growth leadership roles. He was general manager for Arriva before moving into launching and scaling new mobility services such as ArrivaClick (DDRT), Zeelo (Smart Bus Services for Corporates), Ride On (Electric Bike-Share) and Padam Mobility (DDRT).