On October 30th the Chancellor of the Exchequer, Rachel Reeves, announced her first Budget, and there are implications for car buyers. Here is an overall summary of the areas of the Budget that will impact car drivers and buyers. 

Fuel Duty 

While it had been widely suggested that Chancellor Rachel Reeves would remove the 5p cut in petrol and diesel fuel duty introduced in March 2022, it did not happen. The current rate of 52.95p per litre will be retained through 2025-2026. 

A Focus on Fully Electric Vehicles 

The main focus of the budget regarding cars was on promoting zero emission electric vehicles (ZEVs) through a combination of ‘carrot and stick’ with confirmation of the government’s plan to reintroduce the ban on the sale of new internal combustion engines (ICE)  petrol and diesel cars from 2030. 

Despite lobbying calls to support private buyer demand for electric vehicles (EVs), either new or used, or to equalise VAT on public and home charging, the focus was all on the new car market, notably for business users/businesses. 

Benefit in Kind (BIK) Development 

The Chancellor announced that the government would maintain key tax incentives for purchasing ZEVs. These include continuing low company car benefit in kind (BIK) tax rates beyond 2028; the appropriate percentages for ZEVs will rise by two per cent for 2028/29 and 2029/30, increasing to 7% and 9%, respectively. However, company car drivers of plug-in hybrid electric vehicles (PHEVs) face an increase in their BIK from 2028/29 of up to 13%, with zero-emission mileage being dropped as a differentiator. 

The move provides continued support for fleet take-up of ZEVs and ZEV salary sacrifice schemes.  

100% First Year Allowances 

The Chancellor extended the availability of the 100% first-year allowances for ZEVs and the 100% first-year allowance for qualifying electric vehicle charge-points to 31 March 2026 for Corporation Tax purposes. 

Vehicle Excise Duty (VED) 

The government is to review the planned expensive car supplement for EVs under Vehicle Excise Duty (VED), often known as road tax of the road fund licence. 

Starting on April 1st 2025, EVs are scheduled to pay VED for the first time. In addition, new EVs costing over £40,000 were scheduled to become liable for the Expensive Car Supplement, which already applies to petrol and diesel cars. Currently, this adds £410 a year for the five years. The Chancellor announced that the government would consider raising the threshold for ZEVs, but not hybrid vehicles, at a future fiscal event “to make it easier to buy electric cars”. 

Arguably, the biggest news from the Budget was the announcement of doubling the cost of the first year’s VED  for buyers of many new models, increasing the differential between fully electric and petrol/diesel vehicles. 

From April 2025, standard VED rates will increase by the rate of inflation. However, after that date, anyone buying a new car will face a significantly larger VED bill if it emits more than 75g per kilometre of CO2. Currently, all petrol and diesel cars on sale exceed this, as do most small conventional 'self-charging' hybrid vehicles. It means buyers face hiked first-year road tax costs of between £270 and a staggering £5,490. From a car's second year, all models will be subject to a standard rate of VED.