Reforming UK taxation for large, heavily-polluting cars

The UK is failing to properly tax oversized, highly polluting cars compared to other European countries. It is lagging well behind in creating a clear tax differential between battery electric (BEVs) and petrol SUVs, ranking 24th out of 31 European countries.

New higher polluting cars are taxed at a significantly lower rate at the point of purchase in the UK compared to other European countries with similar tax systems, meaning the UK Government is missing out on an equitable and easily actionable source of revenue by not targeting buyers of oversized, over-polluting SUVs.

A consequence of not properly taxing higher polluting cars at the point of purchase is that the UK has a much higher proportion of new highly polluting cars registered than other European countries. Cars with over 160 gCO₂/km represented over 15% of new private car registrations in 2023 in the UK, compared with just 0.7% in France, which taxes higher polluting, oversized cars much more heavily.

The UK has shown leadership in the corporate channel, with its benefit-in-kind (BiK) system which ranks among the top 2 in Europe for incentivising BEV uptake. BEV uptake in the corporate channel since BiK was reformed,saw registrations surge from 1.6% in 2019 to 22.3% in 2023, while the private channel stood at just 8.8%. The UK should build on this success by reforming first year Vehicle Excise Duty (VED) to provide a clearer incentive for new car buyers in the private channel too.

Reforming taxes on new car purchases, targeting the purchases of expensive, oversized, highly polluting new cars, could be an important lever to incentivise growth of BEV sales while also providing an equitable source of revenue for the Government to invest in supporting people on lower incomes to make the switch to BEVs.