I can’t remember a more defensive press release than yesterday’s letter from the Department of Transport (DfT) detailing the big reductions in the maximum level of subsidies available through the Plug-in Car Grant Scheme.
He insisted that the reforms were above all aimed at ensuring that more people could access grants. He stressed that the total levels of funding available through the scheme remained unchanged. He found that one in 10 new cars sold in the last month was electric. He recalled that over the past decade, the program has supported the sale of nearly half a million zero and low emission vehicles.
What it did not do was actually provide information on the extent of the cuts to popular subsidies, simply confirming the new subsidy levels and leaving interested parties to do their own research to find out. refresh your memory as to current subsidy levels. A quick Google search confirms that the subsidy for new electric cars has been cut by 40% from £ 2,500 to £ 1,500, while the price cap for cars eligible for the grants has been reduced from £ 35,000 to £ 32,000. This is the second major subsidy cut in nine months – nine months following the Prime Minister’s promise to deliver a New Deal-style Rooseveltian-style green stimulus package to help the economy recover from the COVID crisis.
Particularly for businesses, subsidies for electric vans have also been reduced from £ 3,000 to £ 2,500 for small vans and from £ 6,000 to £ 5,000 for large vans. In addition, subsidies are now limited to 1,000 vehicles per year per customer – a potentially significant blow to the largest and most ambitious fleet decarbonization plans.
The government is betting that these drastic cuts will have a negligible impact. The market for electric vehicles is booming, and there is evidence that prices for some models have actually fallen following the previous round of subsidy cuts last March, with manufacturers absorbing some of the costs.
There are reasons to believe that this bet can pay off. The demand for electric vehicles from businesses and consumers is now so strong that it will continue to grow rapidly over the next year. The moderating effect of the reduction in subsidies will be difficult to detect in a booming market. Furthermore, figuring out how and when to withdraw subsidies and let a new market stand on its own is always a delicate balancing act. The government is understandably unwilling to channel taxpayer dollars to often wealthier motorists and businesses when they could foot the bill themselves.
And yet, it’s worth asking what the government was trying to achieve with the Plug-in Grant Scheme in the first place.
Emissions from transportation have not declined for much of the past decade. The electrification of road transport is absolutely essential to achieving the UK’s net zero and air quality targets. The switch to electric vehicles is essential for the long-term competitiveness and job creation success of the UK automotive industry. The market must be prepared so that it can meet the target of ending sales of new internal combustion engine vehicles by 2030 – which is only nine years away.
In this context, why would you want to curb the demand for electric vehicles, especially since the cost of the device remains relatively low in the grand scheme of things and the benefits are so great?
The fact that one in 10 new cars sold is now an EV is a welcome improvement, but in Norway plug-in models now account for over 90% of the market – pure EVs account for three-quarters of the demand. In France and Germany they’ve increased EV subsidies as a key part of COVID stimulus packages, in the UK we’ve cut them – twice.
Yes, phasing out subsidies is a delicate political challenge, but in the face of a climate crisis and the urgent need to both meet net zero goals and recover from an ongoing economic crisis, it is extremely perverse to slash an effective program and curb demand for critical and strategic clean technology. A month after COP26 ended in talking about accelerating global climate action and making transport electrification a critical part of the global net zero transition, the UK Treasury followed news that it was going to suspend transport. plans for rail electrification with cuts to a very popular subsidy program for electric vehicles. . And all this to save sums of money which often constitute a rounding error in the national accounts, which clearly offer significant economic and environmental benefits.
It is hard enough to conceive of the fastest technological revolution in human history. This becomes practically impossible if you are asked to do it with the handbrake engaged.
This article was first published as part of BusinessGreen’s Overnight Briefing, which you can subscribe to here.