Last week’s UK Budget wasn’t half as grim as many expected so, almost inevitably, Chancellor Rachel Reeves is getting in the neck for allegedly exaggerating the hole the UK economy was in. I generally don’t like to kick people when everybody else is putting the boot in (I’m an old softy at heart), but I do think she made a significant error on vehicle taxation.

Tax currently makes up about 45-50% of the cost of filling the tank on your ICE vehicle. The transition to electric vehicles means this significant revenue stream for HMRC will dwindle. Reeves announced that from 2028, EVs will be taxed at 3p per mile. The balance to this was the announcement that the fuel duty escalator freeze, which has been in place since 2011, would finally be coming to an end.

Fair?

My problem isn’t the EV tax per se – it is inevitable that drivers of any kind of vehicle need to pay more for all that road infrastructure and its maintenance. No, it’s the timing.

Currently, relatively new Chinese brands such as BYD are pumping out EVs at incredible prices. They’ve only ever produced EVs so ramping up production is straightforward. By contrast, the legacy motor brands have to negotiate the transition in a shrinking market: redesigning cars, retooling factories, securing a supply chain of electric drive trains and batteries, all while total revenue is falling. If a production line is being retooled, it can’t produce cars, so you can’t sell cars. Those companies are vulnerable right now.

The UK EV market is just moving out of the ‘early adopters’ and into the ‘early majority’ stage. This means the average consumer standing in a dealer’s showroom could go either way: ICE or EV (or hold on to their existing ICE car). The transitioning brands are gambling on enough of them deciding to embrace the new rather than cling to the old to pay back their investment. As a consumer, buying an EV will still save you money on running costs under the forthcoming  tax, but not nearly as much as before. The Office of Budget Responsibility estimates that the tax will cut EV sales by 440,000 over a decade.

Nobody seems to know exactly how the new tax will be collected as we haven’t had anything like this before. There is speculation that its introduction will almost certainly be delayed. So why announce it now when it isn’t ready and the industry is in such a vulnerable state? In a year or two’s time, the new production lines will be humming, the early adopters will have had their reward, there will have been time to plan the new system, and then the tax can be introduced more smoothly.

In politics, we talk about “the optics” of a policy – whether or not it is a good policy, does it look right to the general public? The optics of this decision create uncertainty at the worst possible time. Vibes matter.