The Government is mulling plans to increase the threshold for its controversial luxury car tax to boost EV demand.

The plans, revealed in a leaked letter from Roads Minister Lilian Greenwood seen by Autocar, would see the present £40,000 price-threshold increased purely for electric cars – or scrapped entirely. Greenwood said the plans would “make it easier to buy electric cars”.

Dubbed the ‘Tesla Tax’, the Expensive Car Supplement is an additional charge of £425 for cars with a list price of over £40,000 – payable for five years from the date of the first VED car tax payment. It’s been levied on new petrol and diesel cars costing more than £40,000 since 2017 but was also expanded to cover new EVs from 1 April 2025, as announced by the Conservatives in the 2022 Autumn Statement.

Since the announcement back in 2022, there’s been widespread condemnation of the move, and its failure to reflect the rapidly changing price landscape of EVs.

While it was originally intended to target high-end luxury vehicles, the £40,000 threshold introduced in 2017 has remained unchanged for eight years and the ECS will impact seven in 10 new electric cars sold in Britain in 2025, according to Auto Express.

With the average EV costing well over £40,000 – and even £50,000 according to some reports – critics of the luxury car tax say it’s stifling EV demand and undermining the Government’s ZEV mandate.

Labour said in the 2024 Autum Budget that it recognised the “disproportionate impact of the current VED Expensive Car Supplement threshold for those purchasing zero-emission cars” and would consider raising the threshold for zero-emission cars at a future fiscal event – with the comments now reiterated in the leaked letter from the Roads Minister.

According to reports, the threshold for EVs may rise to between £50,000 and £60,000.

Earlier this year, Alphabet called for the threshold to be increased to £60,000 – based on a review of 3,508 quotable vehicle models – and to be reviewed annually.

Analysis published by the business mobility and fleet management services specialist revealed that the number of EVs accessible to consumers for under £40,000 is severely limited.

Its data showed that for just under 1,000 quotable EV models, the average list price was £60,273.

And for 81% of quotable EVs that are listed over £40,000, the average P11D equates to £66,041.

Caroline Sandall-Mansergh, consultancy and channel development manager, said this “shows just how much the threshold needs to shift to be truly reflective of the market”.

Reports of a rise to the ECS have been broadly welcomed.

Stellantis UK boss Eurig Druce said: “We’d like to see a review of this new taxation, with a raised threshold, so that UK drivers have fewer barriers in order to make the switch to electric cars.”