Autumn Statement 2022 Key Highlights

Monday 21st November 2022

London skyline

As the Chancellor rose to his feet, the country braced itself for bad news and Mr Hunt didn’t wait long before confirming that Britain is in recession, with the economy set to shrink by 1.4% next year before seeing growth of 1.3% in 2024 and 2.6% in 2025.

The briefest of budget summaries would simply state that taxes are going up and spending is coming down. And, while we will have to wait until the next spending review to understand where most of the cuts will be made, the decision to freeze all but the highest income tax threshold will mean that millions of us will, in effect, pay more tax as wages rise.

For drivers and fleet operators, there were several key announcements which will have a direct impact on the future cost of motoring.

1. Carbon-neutral commitments remain

The chancellor reiterated the government’s continued commitment to the Glasgow Pact struck at last year’s COP26, as well as a 68% reduction in emissions by 2030.

These targets can only be reached by making significant progress in decarbonising Britain’s roads and so it’s clear that the Chancellor will need to continue incentivising people to make the switch, while ensuring fairness, securing energy supplies, and stabilising prices.

2. EV taxation to gradually increase from 2025

Thanks to ultra-low rates of Benefit in Kind (BIK) taxation and a wide range of tax and other exemptions, EV drivers and businesses making the switch are currently experiencing a ‘golden period’. It’s an opportunity not to be missed because, as today’s announcements showed, the window to maximise these savings will begin to gradually close over the years to come.

Starting in 2025, BIK rates for electric and ultra-low emission cars emitting less than 75g/km are set to rise by 1 percentage point a year for 3 years, up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars. This might not sound like particularly good news but remember that as we get to 2028, electric car drivers will still only be paying 5% BIK tax.

Rates for all other vehicles will also increase by one percentage point for 2025-26, up to a maximum appropriate percentage of 37%. The rate will then be fixed until 2028. Again, this shows a narrowing of the gap between electric and ICE vehicles. That said, setting out rates until 2028 does bring a degree of certainty amidst the chaos and helps fleets plan ahead with a degree of confidence.

3. Fuel and van benefit charges to rise in line with CPI

In an unsurprising move, Car and Van Fuel Benefit Charges and Van Benefit Charge will rise in line with the September 2022 Consumer Price Index (CPI) rate. This seems reasonable enough under normal circumstances but, with inflation running so high, this does mean an increase of 10.1%.

4. Advisory Electricity Rate (AER) rises to 8ppm

News that the AER is set to rise from 5ppm to 8ppm from December 1 will be welcomed by EV drivers using their cars for business purposes. The current rate was set back in 2018 and was based on a combination of the average cost of electricity and the efficiency of EVs at the time. Both have changed considerably since then and the 8ppm figure gets us closer to a more realistic figure for cars, especially those which are predominantly charged overnight at home. However, it falls well short of true costs for vans or those who rely strongly on public charge points. At least the fact that AER rates will now be reviewed quarterly should help to keep things in check.

5. EV drivers to start paying road tax from 2025

In a move described as ‘making the motoring tax system fairer’, the Chancellor also announced that EVs will no longer be exempt from Vehicle Excise Duty (VED) from April 2025. This means that newly registered EVs will start to attract the lowest rate of VED in the first year (currently £10) before moving to the standard rate of £165. Zero emission cars first registered between 1 April 2017 and 31 March 2025 will also pay the standard rate.

Fully electric vans will also see a rise in the rate of VED, taking them to £290 in most cases and the rates for Alternative Fuel Vehicles and hybrids will also be equalised.

Whilst there has been plenty of talk about new forms of taxation, including road pricing, to replace the long-standing fuel duty and VED, the Chancellor was silent on this matter — for now.

6. EV Expensive Car Supplement exemption ending

The Expensive Car Supplement applies to new cars sold with a list price of more than £40,000 for a period of 5 years. The current rate is £355 and zero-emission cars have thus far had an exemption due, in part, to the higher price of EVs. With pricing falling, the government clearly feels it is fairer to start applying the charge for drivers choosing premium model vehicles, irrelevant of emission levels.

7. Extension of First Year Allowance for EV charge points

To further support businesses looking to create an on-site charging infrastructure, next year’s Spring Finance Bill will include extending the 100% First Year Allowance for chargepoints to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.

8. Energy price cap to continue

Anyone charging their EV at home will be relieved that the Energy Price Cap will remain, albeit at the less generous level of £3,000 from April 2023. This will, of course, mean that most of us will be paying more for the energy we use at home. That said, even taking this rise into consideration, the annual fuel costs for a medium-sized petrol car is still well over double that of a similarly sized home-charged EV.

9. Prioritising energy security and efficiency

The spiralling cost of gas resulting from the war in Ukraine has brought renewed focus on the UK’s ability to generate its own energy. Mr Hunt’s statement that Britain is a global leader in renewable energy, with 40% of our electricity coming from renewable sources, was backed up with promises of a major acceleration in home-grown technologies like offshore wind, carbon capture and storage, and, above all, nuclear.

The newly stated ambition that by 2030 energy consumption from buildings and industry will be reduced by 15%, and the commitment to double investment in energy efficiency to over £12bn from 2025, are all part of the government’s plan to not only secure our energy supplies but to offer the sort of long-term pricing stability that EV drivers and fleet operators demand.

As always, the devil is in the detail, and the true impact of today’s announcement will become clearer in the days ahead. In the meantime, if you have any questions about the impact of the proposed changes, or if you’re looking to take advantage of the current incentives on offer to drivers and fleet operators making the switch to EVs, just get in touch.

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Novuna Vehicle Solutions is a trading style of Mitsubishi HC Capital UK Plc. Other brand names under which we trade include Novuna Consumer Finance, Novuna Personal Finance, Novuna Business Finance and Novuna Business Cash Flow.

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