To paraphrase the ancient Chinese curse; we live in interesting times.

The motor car was invented by Karl Benz in 1886. 1954 was halfway through the evolution of the car, and notwithstanding the various wings, excessive use of chrome and radial tyres, cars were already closer to what we have today than Karl’s original tricycle. Of note, it was the 1950s when we first saw car leasing in the UK, and that was quickly followed by the introduction of company car tax….

Spin forward to today and we’re at the beginning of a revolution that will again change everything; the dawn of the age of the electric car. Accounting for around 10 to 20% of monthly car registrations, EVs still represent less than 2% of the around 33m cars registered in the UK. But that’s from nowhere just ten years ago, and by 2030 all new cars MUST be electric or plug-in hybrid only. In twenty years you’ll drive past a petrol station and think “I remember those”.

Of course, the initial growth of the EV has been mired by issues outside our control. First Covid that decimated road use, and arguably things are yet to return to “normal” (whatever that will be in the future). Then we saw collapses in the worldwide supply of things like semiconductors. Overall this means that 2022 is looking like the worst year for new car sales in the UK since early 1990, with possibly less than 1.5m cars sold by Christmas. Around 2.3m new cars are registered in a normal year, and this means that over 2 million cars have NOT sold in the UK over the last 3 years. At average prices, in each respective year, that’s an economic loss to the economy of circa £91bn and means that HM Treasury didn’t collect around £15bn in VAT.

So where are we now? Well, the EV market seems constrained by ongoing supply issues. July saw a significant fall in EV registrations compared to June. This may or may not be the short-term trend. If anything the situation for petrols and diesels seems to be slightly improving. In July more diesels sold than EVs and that hasn’t happened since Autumn 2021. In the longer term, we can expect the situation to improve, but it remains to be seen if the market ever recovers to 2.3m new units a year. This is especially true when you consider that in just eight years those units all need to have big batteries, meaning that the UK will need more EVs annually than the whole of Europe took in 2021.

If you’ve driven an EV you’ll know there’s a lot to recommend them. And with each new car launched the situation improves, with longer ranges and more choice. But it’s likely the biggest driver to adopt right now is a series of tax breaks that exist for company electric cars. This has given rise to salary exchange schemes. In a nutshell, you pay a lot of tax and NIC on your salary but pay a lot less (as in more than 90% less) on an EV company car, and these schemes allow you to exchange one for the other. We believe arrangements like this are increasing the number of company cars on the road, which had fallen under the old rules to just 800 thousand units by April 2020.

We know the existing tax rules should be in place until April 2025, but after that we are waiting to hear what the Government intends to do. With the change of Prime Minister, it’s hard to predict what they’ll do next, but you’d argue a Government committed to net-zero is unlikely to do anything to damage the growing EV market whilst it’s still in its infancy.

Pink Salary Exchange would like to thank Harvey for contributing this guest article.