Choosing an electric vehicle (EV) over a petrol car cuts tax bills by an average of almost £900 in the first year alone, according to new research. The study by the RAC Foundation found although this tax break doesn’t always save drivers money, it is costing the government millions in lost revenue.

The RAC Foundation analysis suggested pure electric cars cost the Chancellor an average of £897 during the first 12 months of its life when compared with petrol-powered vehicles. And when compared with diesel-powered cars, the figure is even higher, at £1,139.

The organisation looked at 10 of the UK’s best-selling electric cars and their petrol and diesel alternatives, then compared the tax payments. Not only did this include the first-year VED rate, or ‘showroom tax’, but it also used average mileage data to work out the lost fuel duty receipts and lost VAT receipts.

MINI Cooper SE Electric Collection charging

Because Vehicle Excise Duty (VED) is linked to tailpipe CO2 emissions, owners of electric vehicles do not have to pay, so the Treasury loses out on up to £2,500 in the first year of the car’s life. Electric car drivers don’t pay fuel duty, either, and then there’s the VAT, which is not just levied on the fuel itself, but also on the fuel duty, allowing the Treasury to effectively tax motorists on the tax they pay to the government.

Of course, these tax breaks do not always equate to extra money in the pocket of owners. Electric cars still tend to be more expensive than their conventionally powered counterparts, and other associated costs – including the cost of charging – may mean motorists spend more on an EV than they would with a petrol or diesel car.

However, the Chancellor’s tax losses are an indicator of the incentives available to EV drivers, as well as a stark reminder that vehicle taxation policy will likely change as electric vehicles become more common. Steve Gooding, the director of the RAC Foundation, said the figures could prompt the Chancellor to roll back the incentives on electric vehicles as uptake increases.

“In the face of a big decline in revenue the chancellor could decide to turn off the money taps and start to tax EV drivers rather than subsidise them,” he said. “For those buying battery-powered cars on the premise of cheap motoring that will be a huge shock. Or Mr Sunak might conclude that the hole in his finances is actually rather modest when set against the benefits of saving the planet with the help of green vehicles.”

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