Following the publication of the industrial strategy in 2017, in which Theresa May attempted to envisage a post-Brexit future, electric vehicles (EVs) were identified as an important opportunity for the UK political economy. Yet, despite the almost annual publications that reiterated the need for EVs to become a significant feature of the UK, attempts to develop a domestic EV industry have stalled, if not entirely failed. In this article, Dr James Jackson outlines policy proposals needed to accelerate the EV transition.
- A lack of Treasury support and manufacturer commitment to a UK EV industry have stalled the transition.
- Consumers responded to reforms and subsidies – but these have since been dismantled.
- As we strive to meet climate objectives, the EV transition still presents benefits to the UK both environmentally and economically.
A stalled process
The EV sector was has been routinely namechecked in documents from the Clean Growth Strategy to the Green Industrial Revolution, which formed the basis of the government’s strategic aims for climate and economic policy. Aside from the benefits the transition presented to the UK climate objectives, cultivating a burgeoning EV sector was viewed as a much-needed source of economic growth, employment, and a domestic comparative advantage with global competitors.
Despite this, a series of obstacles and roadblocks have prevented the UK EV industry from building any real momentum.
For example, a company established in 2021 in the northeast of England only a year into its operation, encountered difficulties in securing further funding beyond the seed capital provided by the Treasury and private investors. Indicative of the Treasury’s broader approach to capital spending, which has long since invested a lower proportion of GDP compared to its European neighbours; this was a project contingent upon ‘crowding-in’ private sector capital that was not forthcoming.
Outside of the government’s endeavours to forge a domestic EV industry, prominent manufacturers also dealt a blow to its ambitions. Noticeable market actors, namely Tesla and Build Your Dream (BYD), declined the opportunity to establish production facilities (or Gigafactories) in the UK. Tesla incidentally cited the reduced ease of trade with the European Union, and the prospect of slowing the UK’s Just-in-Time (JiT) model, as reasons to set up base elsewhere.
Should these companies seek to establish Gigafactories on the European continent, the implication could be that Britain has a disadvantage with Europe in the eyes of international capital. Similarly, the UK’s relationship with the EU is an asymmetrical one, in which the UK is bound to fulfil stringent Rules of Origin requirements, but is not equipped with the economic tools to meet them. How this dynamic might be altered by the EU’s new approach to EVs, and climate policy more broadly, through the European Green Deal, REPowerEU and emissions standards remains to be seen. What is presently clear, however, is that there remains a significant gap between the government’s initial plan for EVs and the reality.
Driving EV development
Before becoming entwined with broader industrial and economic objectives, developing the EV sector was largely a question of adjusting the tax framework around cars of all types. With all cars subject to Vehicle Excise Duty (VED), otherwise known as road tax, rates were adjusted to omit EVs by their reduced emissions. For businesses, that procure vehicles for work use, EVs could also be tax deductible from staff through Benefit in Kind (BiK) tax or company car tax. By offsetting a certain proportion of tax against the cost of the EV, they are brought into parity with petrol and diesel alternatives which are typically cheaper to buy, and more ubiquitous on secondary markets.
In addition to these supply-side reforms, the government introduced demand-side subsidies to offset the upfront cost of the cars. Consumers would claim subsidies for electric vehicle infrastructure at their homes or work.
After establishing the policy framework around EVs, take up increased, as consumers responded to the incentives. Yet, since then, the framework was gradually dismantled – with the EV subsidy, having been gradually reduced over time now removed completely.
Measures that government could take to rekindle consumer interest and revitalise the EV industry would be to reinstate demand-side subsidies – reverse the decision to remove the plug-in vehicle grant. Also useful would be to maintain supply-side stimulants until at least the UK is re-aligned with fourth (2023-2027) and fifth carbon (2028-2032) budgets.
EVs will soon be further incorporated into the VED framework amidst the spike in, and greater uncertainty around, energy prices to power the vehicles. After the Uxbridge bi-election was fought upon the grounds of Ultra-Low-Emission-Zones (ULEZ) – an associated measure to support EV development at the local and regional level – public opinion and climate policy dialogue has become ever more contentious around this issue of Ultra-Low-Emission-Zones.
As a result, it is not an exaggeration to say that the instrumental value of EVs has significantly changed over time, and not for the better.
Moving the EV transition through the gears
Whether the desire to see the UK as a central component in the EV supply chain still exists within the halls of government and the private sector at large, is debatable. In the absence of the industrial modernisation once envisaged having not come to fruition, whether it was the result of a dearth of capital, ambition, or indeed competence raises an array of questions. Yet, the imperative to meet climate objectives, notably the Paris Agreement, remains.
It is useful that the present political and economic landscape, defined by supply-side disruptions, high-interest rates and contracted economic activity, offer legitimate means to accelerate the EV transition. Two more proposals for this are:
- Adjust Treasury fiscal rules to allow for consistent capital funding for low carbon technology, including EV batteries, with the view of establishing a post-Brexit comparative advantage for the UK
- Bank of England to introduce differentiated interest rates (e.g., Targeted Longer Term Refinancing Operations (TLTROs)) to set lower interest rates for ‘green’ lending compared to carbon intensive industries and goods.
Some of the proposals here require revisiting previous policy designs, while others demand moving the policy sphere into uncharted territory. These measures need not necessarily be thought of as EV specific policy interventions (although they can act as strong incentives for prominent manufacturers to establish UK production facilities), but as broader climate policy measures, which EVs will benefit from.
As well as the benefits to air quality, the lower running costs, and lesser maintenance of the vehicles, it remains the case that the EV transition still presents economic and climate benefits to the UK.
Whether any of the measures are implemented or indeed designed might yet rest on the outcome of the 2024 general election. Either way, returning to the EV transition as a vehicle for economic change remains an obvious and increasingly imperative place to start for the UK moving forward toward the zero emissions mandate in 2035.