The UK government’s upcoming pay-per-mile road tax on electric vehicles (EVs), combined with broader zero-emission vehicle (ZEV) mandates, could unintentionally suppress overall car sales – including those with internal combustion engines (ICE). The Office for Budget Responsibility (OBR) initially miscalculated the impact of these policies, later revising down its initial estimates for EV demand reduction.
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The Impact on Electric Vehicle Demand
The OBR first projected a 440,000 reduction in EV demand by 2031 due to the new tax. It then adjusted this figure, claiming that offsetting measures—like raising the threshold for the “expensive car supplement” and extending the Electric Car Grant—would mitigate the decline to 320,000. However, industry analysts remain skeptical that these measures will significantly sway consumer behavior.
Manufacturers may respond by artificially inflating EV list prices to take advantage of the revised tax brackets, rather than incentivizing purchases. Even with the amended projections, the industry faces reduced EV demand at a time when regulations require EV registrations to rise from 28% today to 80% by 2030.
The Ripple Effect on Combustion Engine Sales
The consequences extend beyond EVs. The ZEV mandate imposes penalties on manufacturers if they fail to meet EV sales quotas. To avoid fines—up to £15,000 per vehicle exceeding the limit—manufacturers may be forced to reduce ICE car production. This artificial constraint on ICE sales, combined with the EV tax, threatens to shrink the overall car market.
The OBR acknowledges this dynamic, stating that manufacturers must either lower EV prices (an unlikely scenario given thin profit margins) or restrict ICE sales to comply with the mandate. Lowering EV prices is unlikely, so manufacturers will likely reduce ICE sales.
The Aging UK Car Fleet
The decline in new car sales will exacerbate the problem of the UK’s aging vehicle fleet, which already averages over ten years old. Restricting ICE sales won’t increase vehicle longevity; instead, it will result from deliberate policy choices designed to limit car ownership.
A Policy Mismatch
While reduced consumption can be environmentally beneficial in some sectors, the car market operates differently. Unlike durable goods like toasters, cars are essential for many individuals and businesses. Artificially suppressing sales won’t encourage longer vehicle lifespans but will instead restrict personal and economic mobility.
The current policies fail to recognize the fundamental role of cars in modern life. Rather than incentivizing sustainable alternatives, they punish existing vehicle ownership, potentially alienating voters who value flexibility and freedom.
The long-term effects of these policies remain uncertain, but the potential for unintended consequences is high. A more pragmatic approach—one that acknowledges the value of personal transportation and supports gradual transitions—would be more effective in achieving sustainability goals without sacrificing economic activity.
