The UK could subsidise electric car loans

The British government could subsidise loans for the purchase of electric cars. London has reportedly begun talks with car finance providers to try to increase the availability of low-interest or interest-free loans.

According to the Financial Times, the UK government wants to promote the acceptance of electric vehicles. Although the country has overtaken Germany as Europe’s largest electric car market, electric registrations in the passenger car sector are still lagging behind official targets, as the FT writes.

One problem: so far, electric car sales have mainly increased in the company car sector, where there are significant tax incentives. The situation is different for private customers, where subsidies expired in 2022. Since then, growth has been unable to keep up with the targets, which is becoming a challenge for manufacturers, as there are mandatory electric quotas in the UK.

According to the report, one of the options being discussed is for the government to provide loans to the private sector to reduce the monthly instalments for financing or leasing – over 80 per cent of electric cars in the UK are financed or leased. According to FT sources, the aim is to bring costs down to the level of new petrol and diesel cars. The article refers to “one option being discussed” but does not mention any other possibilities.

The industry welcomes the move to reintroduce a subsidy for private customers purchasing an electric car with a view to the zero-emission vehicle regulations. In 2024, the industry average of 19.6 per cent of electric cars fell short of the target of 22 per cent. This year, 28 per cent of cars sold must be emission-free; by 2030, this figure will be as high as 80 per cent. Manufacturers can be fined up to £15,000 for every vehicle that falls short of the target quota.

In January, the government announced the consultation phase dealing with the 2030 phase-out of combustion engines and the ZEV mandate. The British automotive industry, in particular, will be consulted as part of this process. In these talks, the manufacturers are likely to have put pressure on the government to reintroduce a subsidy for private customers, as otherwise, the ZEV quotas are likely to be missed again – which would have a huge economic impact on car manufacturers.

However, it is considered unlikely that direct purchase incentives in the form of a premium will be reintroduced “because of the direct cost to the Treasury,” the FT writes. Guaranteeing interest-free loans would probably be more favourable. However, the exact cost of the programme will depend on how the subsidy is structured.

ft.com