The Government has announced a new £650m grant that will slash electric car prices, saving UK households up to £3,750 when they upgrade or switch to fully electric cars.

Dubbed the Electric Car Grant, it arrives more than three years after the Plug-in Car Grant (PiCG) was axed and follows widespread calls for action to support consumer take-up of EVs.

As with the former PiCG, the new Electric Car Grant (ECG) will be available at the point of sale for new eligible electric cars – consumers will not be required to fill in any additional paperwork to receive the grant. But this time it’s targeted at affordable cars, priced at or under £37,000.

The scheme is expected to be up and running as soon as carmakers start successfully applying for their zero-emission cars to be part of the grant scheme – applications open from 16 July, with funding available until the 2028/29 financial year.

Full scheme details haven’t been revealed yet but the Government said the ECG will back UK and other manufacturers, with “eligibility dependent on the highest manufacturing sustainability standards”. Available grant amounts are based on sustainability criteria, with the greenest vehicles in band one receiving up to £3,750 and band two vehicles receiving up to £1,500.

The ECG requires manufacturers to have committed to a verified Science-Based Target (SBT) and have embodied carbon scores below a certain threshold. Vehicles made by manufacturers that have not set an SBT will not be eligible for the scheme.

Transport Secretary Heidi Alexander said: “This EV grant will not only allow people to keep more of their hard-earned money – it’ll help our automotive sector seize one of the biggest opportunities of the 21st century.

“And with over 82,000 public charge points now available across the UK, we’ve built the infrastructure families need to make the switch with confidence.

“This is our Plan for Change in action. We’re backing British drivers, British jobs and British growth.”

Funding is available until 2028/29 and the Government said this would remain under review and “the scheme will be subject to amendment or early closure with no notice should funds become exhausted”.

It’s the latest big news for the UK EV sector, following the Government’s announcement at the weekend of a £63m investment package that includes a £25m scheme to support home charging via cross-pavement solutions for households without driveways, a major new grant scheme to help businesses install charging points at depots nationwide, an £8m fund to power the electrification of ambulances and medical fleets across over 200 NHS sites, and new rules that will allow EV charging hubs to be signposted from motorways and major A-roads.

More than 380,000 zero-emission cars were registered last year, but fleets are still at the forefront of EV adoption, accounting for over four in five new BEVs due to highly attractive company car rates. This has led many, including Zemo Partnership in its recent report, to call for the PiCG to return, focused on private buyers and more affordable models.

Many stakeholders across the EV sector said the new grant would transform EV take-up and make them more accessible.

Quentin Willson, founder of the Faircharge campaign, said the support was long overdue.

“The independent EV sector has been ploughing a lonely furrow highlighting the advantages of EV ownership and countering the myriad of misinformation and myths. We’re delighted to see that this government has listened and taken action.”

Dan Caesar, CEO at Electric Vehicles UK, said: “While battery-only EVs are much cheaper to buy and run than most realise, surveys show that cost misperceptions are the primary reason for hesitance.

“A generous grant, of this nature, gives a new group of interested buyers that might have thought that going electric was beyond them, a gentle nudge into what is great tech. More than nine out of 10 battery EV drivers will never revert, and there’s a reason for that.”

The National Franchised Dealers Association (NFDA) also welcomed the news.

Sue Robinson, chief executive, said: “We have continuously called for urgent measures to incentivise EV uptake, including improving charging infrastructure and providing financial incentives such as the former plug-in grant.”

She added: “The Government has taken positive steps in building a constructive relationship with the automotive industry who have voiced concerns over the ZEV mandate’s ambitious targets. In our response to the ZEV mandate consultation, NFDA underscored the need for stronger incentives to boost consumer demand for electric vehicles. Our members are in the main EV ready, but they cannot sell EVs when so many are still perceived as representing poor value for money to the consumer. The ‘Cost of an EV’ has been consistently top of our surveys as to why a customer will not consider an EV. While this cost seems to be coming down, it is happening at a slower rate than the industry was hoping for. We have advocated for a return to an electric vehicle grant and called for improvements to inadequate charging infrastructure.”

Charging firms also applauded the news.

Vicky Read, CEO of the ChargeUK trade body, said the package was “another vital boost to the charging industry, helping it invest with confidence”.

John Lewis, CEO at Char.gy, said: “This move brings us closer to a future where driving electric is accessible to everyone – not just the privileged few.

“Combined with the introduction of the price cap and the additional funding for on-street charge points, we can get more affordable cars on the road and more people enjoying the benefits of EVs.”

But the BVRLA, which last week called for urgent action to bolster precarious used car values, warned of the ramifications for the used sector.

Chief executive Toby Poston commented: “Bit, by bit, the Government is chipping away at the barriers to EV adoption. Targeted incentives have powered the transition to date and now the Government is acting to widen the demand base for new electric cars by providing this grant. This generous grant will boost uptake in the retail market but could have serious repercussions for the used market, where rampant depreciation already has red warning lights flashing.

“Further stimulating new EV registrations without supporting the used market risks creating an even greater supply/demand imbalance, putting even more pressure on fast-deflating second-hand values. The resulting losses will erode confidence and result in higher finance costs for new EVs, eliminating much of the benefit from the original grant.”

And Cox Automotive echoed the BVRLA’s concerns.

The latest residual value analysis from the car data specialist reveals that EVs up to 24 months old are only holding 46% of their original cost new (OCN) in July 2025. This is a stark comparison to 2022 where vehicles of the same age retained 85% of OCN.

Philip Nothard, insight director at Cox, said: “Heavy discounts on new EVs have already dampened demand for nearly new models available in the used car market. While driving down the cost of new vehicles will undoubtedly increase the EV adoption in the new market, these incentives fail to recognise the impact they will have on the used market. Residual values for cars up to two years old are now at a greater risk of further depreciation if adequate support is not extended to used vehicles.

“The used market is a crucial source of profitability for the automotive sector, so the strength and consistency of the industry is crucial to the success of the Government’s net zero ambitions. To ensure this, the Government needs to consider more support for the used EV sector to put the brakes on the rapid pace of depreciation.”