We don’t know if Rachel Reeves is considering withdrawing or changing the current tax breaks on salary sacrifice schemes for electric vehicles in the upcoming budget.
But if she does, she’ll wipe away the only tax benefit available to private drivers and slow down the country’s EV adoption. Yes, it’s that monumental a decision.
If a company operates a salary sacrifice scheme – and over 5,000 firms do – the employees can lease a brand-new EV and pay for it out of their pretax salary. They get a reduced salary but lease a new car and create tax savings for both the employer and employee. It’s also a good incentive for attracting staff.
Some providers include insurance, a charge box, breakdown, tyres and maintenance in the monthly cost which can range from £239 a month for the latest electric Mini Cooper, £329 for a Tesla Model Y to £490 for a BMW i5 Touring. Sal sac providers claim the scheme can save up to 60% of the cost of buying a new EV including the costs of charging box, tyre replacement, servicing and insurance.
But the really important bit is that sal sac employees are protected from depreciation – which on EVs is fairly step in the first couple of years. At the end of the lease period, typically two to three years, you just hand the EV back and sign up for another – as over 90% of sal sac drivers do. As a policy lever to increase EV adoption it’s been very successful with tens of thousands of private drivers making the switch.
Some say that sal sac benefits only well-off drivers. Katie Brown, Communications Manager at Tusker Direct, a major EV leasing provider, says: ‘The majority of our orders for October are from basic rate taxpayers, and over half are from NHS staff, police forces and local authority workers.’ She believes that ‘Salary sacrifice is enabling more people to get into an electric car in an easy and affordable way.’ Love Electric, another EV leasing provider, claims their online ordering process is ‘Like Prime, but for electric cars.’
We don’t know exactly how many private drivers have taken advantage of EV leasing on salary sacrifice schemes because the registration figures are included in the fleet sales category by the Society of Motor Manufacturers and Traders (SMMT), even though these EVs are being used by private drivers. Experts reckon it’s a significant number.
As a policy that makes switching to an EV as simple as ordering on Amazon, protecting users from depreciation and paying for insurance, servicing and tyres, no wonder it’s been such a success. And yes, there’s a cost to the Treasury, but if this
government is really supportive of the EV transition, as they so often claim, this is far more cost effective than handing out subsides. There’s the societal benefits too of cleaner air from zero tail pipe emissions.
Fiona Howarth, CEO of Octopus EV is unequivocal: ‘The Government has sent a clear signal to the car industry to make electric cars. Any changes to the few incentives for private drivers, particularly lower rate taxpayers, that currently make them cheaper is only going to slam on the brakes on the U.K’s EV and energy transition.’