The Treasury has rejected a proposal to reduce VAT on electricity used at public electric vehicle (EV) chargers from 20% to 5%, according to multiple industry sources. The plan, which was considered during the last budget, had the backing of the Department for Transport (DfT) but was ultimately dismissed by Chancellor Rachel Reeves amid inter-departmental disagreement.
Industry Calls for VAT Reduction
Officials within the DfT encouraged charge point operators to write to the Treasury, outlining how they would respond to a VAT cut. The companies reportedly committed to passing the tax reduction directly to consumers. DfT ministers, led by Heidi Alexander, are understood to support the measure, especially given the current cost-of-living pressures on households.
The government faces mounting pressure to equalise VAT rates for EV charging, as a perceived unfairness exists between those who can charge at home and those without off-street parking. Home charging incurs a domestic VAT rate of 5%, while public charging is subject to the standard 20% rate. Critics have labelled this disparity a "pavement tax," which they argue hinders the transition to electric vehicles, particularly in urban areas.
Treasury Concerns Over Revenue Loss
However, the Treasury has resisted the change due to concerns about the future loss of VAT revenue, which would increase as EV adoption grows and fuel duty revenues from petrol and diesel vehicles decline. This issue is expected to be a key component of the government's review of public charging costs, due to report in the autumn.
The Treasury's hand may be forced by a recent legal ruling. In March, a London tax tribunal determined that the VAT rate on public charging should have been 5% all along, citing a misapplication of the law. HMRC is appealing the decision, but many experts doubt the appeal will succeed.
Industry Reactions and Policy Context
Dan Caesar, founder of Electric Vehicles UK, stated: "VAT on public charging should be canned, making EVs cheaper for all. HMRC's appeal against this, despite best efforts of other departments, shows what a mess the government is in." He added that the majority of British citizens can still benefit from cheaper motoring, and the government should not be afraid to promote that.
Equalising VAT on public charging could provide an additional incentive for consumers to switch to electric cars, especially as other Labour government policies have slowed adoption. In November, Reeves announced a 3p-per-mile charge for electric cars from 2028 to replace declining fuel duty revenues. The government is also considering further weakening its zero-emission vehicle (ZEV) mandate, which requires manufacturers to sell an increasing share of electric cars. Charging companies have reacted furiously to the prospect of fewer electric vehicles using their infrastructure.
Government Statement
A government spokesperson said: "The government is boosting the EV transition by saving drivers up to £3,750 off a new car, with more than 95,000 people benefiting already, and investing over £7.5bn into the UK electric vehicle sector. We're also reviewing the cost of public EV charging which will look at the impact of energy prices, wider cost contributors, and options for lowering these costs for consumers."
