Announced as inflation reached its highest level since 1977, the Chancellor’s Autumn Statement set out £55bn in tax and spending reforms through to 2028 to shore up Government finances.
The changes include some important details for motorists, and they don’t only affect new cars. We’ve had a look at the main points below.
Zero-rate vehicle excise duty scrapped
Often known as "road tax", vehicle excise duty (VED) will be reformed in April 2025 and will apply to all electric cars, vans and motorcycles for the first time - and that’s just the tip of the iceberg.
Since 2017, cars have been charged a CO2-weighted First Year Rate when they are registered (included in the ‘on the road’ price) and a Standard Rate every year afterwards, which is currently £165. Hybrids get discounted rates, cars costing over £40,000 are liable for an Expensive Car Supplement (currently £335) for the first five years after registration, and electric vehicles are exempt from all charges.
From 1 April 2025, hybrid and electric cars will be liable for the same Standard Rate as their petrol and diesel counterparts. New electric cars will also be liable for the lowest First Year Rate (currently £10) and the Expensive Car Supplement if they cost more than £40,000. This will leave a lot of drivers paying at least £500 per year.
Those changes are also being backdated. The Standard Rate will apply to all electric and hybrid cars registered since April 2017, and VED exemptions for older low-CO2 vehicles are being axed too. Cars which emit less than 100g/km CO2 and were registered between 1 March 2001 and 31 March 2017 will move onto the lowest rate of VED (currently £20 per year) – and this includes electric vehicles.
Steady increases in company car tax
After months of fleet industry lobbying, the Autumn Statement confirmed long-overdue company car tax bands beyond April 2025. Company cars typically have a three-year lifecycle, so drivers ordering or taking delivery since April have taken a gamble on tax costs for the last months of their contract.
Company car tax is underpinned by a “taxable value” for the vehicle – this is a percentage of the list price that gets bigger for vehicles with higher CO2 emissions. Drivers’ Benefit-in-Kind is a percentage of the taxable value based on their income tax band (typically 20% or 40%), and it also dictates employers’ Class 1A National Insurance Contributions, at a flat 13.8%.
The Chancellor said he had “listened to industry bodies” when making decisions. Bands will rise by 1%-point in 2025/26 (capped at 37% for the least efficient models) then frozen until 2027/28. Vehicles emitting less than 75g/km CO2 – plug-in hybrid and electric cars – will then get a further 1%-point rise in the following two financial years.
For electric vehicles, company car tax will rise from 2% in 2025/26 to 5% in 2027/28. That’s still significantly lower than the 25% rate for the most efficient petrol, diesel or so-called “self-charging” hybrids. It’s a powerful incentive – 35% of company-leased vehicles delivered in the second quarter of this year were electric, according to industry association the BVRLA.
Rising charging costs for electric cars
Demand for energy in Europe has outpaced supply for over a year. It’s caused a once-in-a-generation surge in wholesale prices, exacerbated by embargoes on Russian gas following its invasion of Ukraine. With 40% of the UK’s electricity coming from gas power stations, the cost of charging an electric car has increased significantly as a result.
UK households paid an average 18.9p per kilowatt-hour (kWh) of electricity in 2021 according to Government data. Even with the two-year Energy Price Guarantee announced by former Prime Minister Liz Truss, prices reached 34p per kWh in October 2022. For households that aren’t on fixed-rate contracts or tariffs with cheaper overnight rates, charging at home has almost doubled in price this year.
Prices will increase again in April 2023. The Autumn Statement didn’t detail unit costs, but confirmed support will be wound back with average household bills set to rise from £2,500 to £3,000. It’s worth noting that the Energy Price Guarantee caps unit rates and standing charges not the bill itself – many homeowners will pay significantly more that.
Limited details of future fuel duty
Contrary to widespread media speculation, the Autumn Statement did not confirm any changes to fuel duty next year. This is a flat charge of 52.95p per litre of fuel, and is separate to VAT. Frozen since 2011, it was cut by 5p per litre for 12 months in March this year to slow the rise in fuel costs resulting from embargoes on Russian oil.
Decisions about future fuel duty changes will be announced in the Spring Budget next March. Although a forecast from the Office for Budget Responsibility (OBR) has suggested a 23% rise is “planned” afterwards, adding 12p to the cost of a litre of fuel, there are no proposals in place as yet.
Reports suggesting otherwise are misinterpreting of the OBR forecast. With no indication of what will be included in the Spring Budget, the forecast makes assumptions based on the current Government policy and acknowledges that this could change in the meantime. Fuel duty would normally rise in line with inflation, but this hasn’t happened in over a decade, and HM Treasury has yet to confirm whether the 5p cut will be extended.
Rising fuel costs are a significant driver of inflation, which the Chancellor is aiming to cut. It’s highly unlikely that duty will be raised by 23% next March – but it’s too early to say.
The changes include some important details for motorists, and they don’t only affect new cars. We’ve had a look at the main points below.
Zero-rate vehicle excise duty scrapped
Often known as "road tax", vehicle excise duty (VED) will be reformed in April 2025 and will apply to all electric cars, vans and motorcycles for the first time - and that’s just the tip of the iceberg.
Since 2017, cars have been charged a CO2-weighted First Year Rate when they are registered (included in the ‘on the road’ price) and a Standard Rate every year afterwards, which is currently £165. Hybrids get discounted rates, cars costing over £40,000 are liable for an Expensive Car Supplement (currently £335) for the first five years after registration, and electric vehicles are exempt from all charges.
From 1 April 2025, hybrid and electric cars will be liable for the same Standard Rate as their petrol and diesel counterparts. New electric cars will also be liable for the lowest First Year Rate (currently £10) and the Expensive Car Supplement if they cost more than £40,000. This will leave a lot of drivers paying at least £500 per year.
Those changes are also being backdated. The Standard Rate will apply to all electric and hybrid cars registered since April 2017, and VED exemptions for older low-CO2 vehicles are being axed too. Cars which emit less than 100g/km CO2 and were registered between 1 March 2001 and 31 March 2017 will move onto the lowest rate of VED (currently £20 per year) – and this includes electric vehicles.
Steady increases in company car tax
After months of fleet industry lobbying, the Autumn Statement confirmed long-overdue company car tax bands beyond April 2025. Company cars typically have a three-year lifecycle, so drivers ordering or taking delivery since April have taken a gamble on tax costs for the last months of their contract.
Company car tax is underpinned by a “taxable value” for the vehicle – this is a percentage of the list price that gets bigger for vehicles with higher CO2 emissions. Drivers’ Benefit-in-Kind is a percentage of the taxable value based on their income tax band (typically 20% or 40%), and it also dictates employers’ Class 1A National Insurance Contributions, at a flat 13.8%.
The Chancellor said he had “listened to industry bodies” when making decisions. Bands will rise by 1%-point in 2025/26 (capped at 37% for the least efficient models) then frozen until 2027/28. Vehicles emitting less than 75g/km CO2 – plug-in hybrid and electric cars – will then get a further 1%-point rise in the following two financial years.
For electric vehicles, company car tax will rise from 2% in 2025/26 to 5% in 2027/28. That’s still significantly lower than the 25% rate for the most efficient petrol, diesel or so-called “self-charging” hybrids. It’s a powerful incentive – 35% of company-leased vehicles delivered in the second quarter of this year were electric, according to industry association the BVRLA.
Rising charging costs for electric cars
Demand for energy in Europe has outpaced supply for over a year. It’s caused a once-in-a-generation surge in wholesale prices, exacerbated by embargoes on Russian gas following its invasion of Ukraine. With 40% of the UK’s electricity coming from gas power stations, the cost of charging an electric car has increased significantly as a result.
UK households paid an average 18.9p per kilowatt-hour (kWh) of electricity in 2021 according to Government data. Even with the two-year Energy Price Guarantee announced by former Prime Minister Liz Truss, prices reached 34p per kWh in October 2022. For households that aren’t on fixed-rate contracts or tariffs with cheaper overnight rates, charging at home has almost doubled in price this year.
Prices will increase again in April 2023. The Autumn Statement didn’t detail unit costs, but confirmed support will be wound back with average household bills set to rise from £2,500 to £3,000. It’s worth noting that the Energy Price Guarantee caps unit rates and standing charges not the bill itself – many homeowners will pay significantly more that.
Limited details of future fuel duty
Contrary to widespread media speculation, the Autumn Statement did not confirm any changes to fuel duty next year. This is a flat charge of 52.95p per litre of fuel, and is separate to VAT. Frozen since 2011, it was cut by 5p per litre for 12 months in March this year to slow the rise in fuel costs resulting from embargoes on Russian oil.
Decisions about future fuel duty changes will be announced in the Spring Budget next March. Although a forecast from the Office for Budget Responsibility (OBR) has suggested a 23% rise is “planned” afterwards, adding 12p to the cost of a litre of fuel, there are no proposals in place as yet.
Reports suggesting otherwise are misinterpreting of the OBR forecast. With no indication of what will be included in the Spring Budget, the forecast makes assumptions based on the current Government policy and acknowledges that this could change in the meantime. Fuel duty would normally rise in line with inflation, but this hasn’t happened in over a decade, and HM Treasury has yet to confirm whether the 5p cut will be extended.
Rising fuel costs are a significant driver of inflation, which the Chancellor is aiming to cut. It’s highly unlikely that duty will be raised by 23% next March – but it’s too early to say.
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