Yesterday’s government U-turn on tax cuts and the Energy Price Guarantee will have serious implications for EV drivers and fleets, LeasePlan UK has warned.

The change to the Energy Price Guarantee leaves EV drivers in the dark on home charging costs

The shake-up by Jeremy Hunt included rowing back on the cap on energy prices under the Energy Price Guarantee, which would have fixed the cost of home electricity at 34p/kWh until October 2024 and offered some certainty for electric vehicle drivers. The scheme’s duration has now reduced to six months rather than two years, after which it will be reviewed and potentially targeted at the least well-off.

Matthew Walters, head of consultancy services at LeasePlan UK, said the Energy Price Guarantee had been one of the key policies announced at the start of Liz Truss’s premiership and warned the change leaves EV drivers in the dark on home charging costs – in particular with the cost of such charging having almost doubled during the last 12 months.

“By removing the cap on energy prices from April 2023, electric vehicle drivers who haven’t already fixed prices with their supplier now face uncertainty about how much it will cost to plug in at home. Wholesale gas prices are still volatile, so the Treasury-led review announced yesterday must take place quickly and provide details of what replaces the Energy Price Guarantee from next April. Otherwise, it risks dissuading people from having the confidence to go electric just as the market is gathering pace.

“Businesses will also be eagerly awaiting the details of future support for energy prices. They are not protected by the Ofgem price cap and are dealing with spiralling operating costs, with limited details about how the current support system would protect them from further increases. This includes public charge point operators, and we have seen prices reaching £1 per kWh for some networks in recent weeks. That is a significant cost for fleets that depend on this infrastructure, but also for drivers without off-street parking.”

LeasePlan also highlighted that the reduction to the basic rate of income tax from 20% to 19% would have offered a welcome 5% reduction in Benefit-in-Kind for around 300,000 company car drivers from April 2023.

“That amounts to an annual saving of between £50 and £100 for a typical petrol, diesel or hybrid vehicle.

“Although small, that would have offered a useful tax cut for households who are already facing rising living costs. Especially as ongoing shortages of semiconductors and other critical components have left many of them waiting a year or more for low-CO2 electric and plug-in hybrid cars; often while still driving a vehicle in a much higher Benefit-in-Kind band.

“The Chancellor has also signalled that changes to the 20% income tax rate will be delayed ‘indefinitely’, which follows last week’s U-turn on the 45% band. In the meantime, choosing a plug-in hybrid or electric vehicle is the most effective way for company car drivers to minimise their tax burden during a period of rising living costs. These can offer up to a 90% saving compared to a petrol, diesel or hybrid alternative.”

And LeasePlan also stressed the need for further action and clarity as the Government readies for a full fiscal statement on 31 October.

“The focus of this ‘emergency budget’ was to stabilise markets following several weeks of turbulence, so we weren’t expecting many details for fleets. However, this is the second of three fiscal events within a six-week period and does little to address some of the biggest question marks for fleet operators.

“Most importantly, HM Treasury must publish company car tax bands from 2025-26 and beyond. Drivers and fleet operators taking delivery of new vehicles today have no idea what Benefit-in-Kind and National Insurance contributions they will be paying during the final years of that contract. That uncertainty has become even more problematic as drivers are often waiting more than a year for new orders to be delivered.

“Fleets will also be eagerly awaiting changes to the Advisory Electric Rate (AER) used for reimbursing the cost of charging an electric vehicle. This has been fixed at 5p per mile since November 2021, despite sizeable increases in charging costs – especially for public charge points – in the meantime. In many cases, this is leaving drivers out of pocket.

“The fleet sector relies on long-term certainty and the ability to make procurement decisions with confidence, and they can wait no longer. The new Chancellor has his work cut out clearing a backlog of vitally important fiscal decisions and this process must begin at the next proper Budget.”

Logistics UK calls for more details on Budget plans

Trade association Logistics UK welcomed the Government’s steps to stabilise the economy yesterday but said more detail was required to reassure business and provide time to enable effective planning and budgeting.

Kate Jennings, the organisation’s policy director, commented: “A fast-moving industry such as logistics needs reassurance that the Government has both credible short-term plans to manage costs and clear long-term goals. Commitment to investment plans for road and rail, as well as policies which support delivery of zero carbon and ensure energy resilience remain crucial so that business can plan effectively today and for the future.

“With energy security risks, rising fuel costs, challenges to investment and skills shortages among the issues currently challenging the bottom line, uncertainty looks set to continue. Logistics underpins every area of our economy, and we urge the Chancellor to provide full proposals on 31 October to ensure that businesses in our sector can have the confidence to continue investment and plan effectively, so that they can help power the economic recovery we all desire.”