New AutoMotive analysis quantifies the unfair tax burden on drivers without off-street parking – and why DESNZ and Ofgem must not leave this problem to the Treasury.
Following Prime Minister Andy Burnham’s first major policy announcement to slash VAT on domestic electricity from 5% to zero, New AutoMotive has published a new briefing detailing exactly what this means for electric vehicle (EV) households. The policy is expected to save the typical household about £45 a year.
However, New AutoMotive analysis reveals that this well-intentioned cut will inadvertently widen the UK’s “driveway divide”. While homeowners with off-street parking reap the benefits of tax-free home charging, drivers reliant on the public network are still paying a 20% VAT penalty.
Here is a breakdown of what the data shows, why equalising VAT isn’t a guaranteed fix, and the broader regulatory reforms required to make EV ownership accessible to everyone.
1. Quantifying the Tax Burden Across Driver Groups
Across the UK’s fleet of 2.2 million battery electric vehicles, drivers collectively pay an estimated £172 million per year in VAT on public charging. By comparison, the government’s new policy will deliver just £40 million in total annual VAT savings for home EV charging.
To understand exactly who benefits, we analysed the impact across four distinct driver segments:
The drivers who stand to save the most from the PM’s domestic VAT cut are those on expensive standard variable tariffs who already have dedicated home chargers (Segment B).
Meanwhile, the 9% of EV owners who have no home charging option (Segment D)—disproportionately renters and urban residents—receive absolutely no benefit from the new policy. Instead, they continue to bear the highest VAT burden of any group at £216 per year.
As our CEO Ben Nelmes told The Telegraph: “The Government has handed EV drivers with a driveway a tax cut on power they were already paying least for. Meanwhile, the driver charging on a public charger down the road, because they’ve got nowhere else to plug in, is still handing 20pc to the taxman on every single mile”.
2. Why a VAT Cut Alone Isn’t Enough
While equalising VAT is a logical next step, our briefing highlights why a tax cut on its own could fail to deliver for drivers.
If the government simply equalises VAT rates, Charge Point Operators (CPOs) must actually pass those savings directly onto motorists. Just like historic cuts to fuel duty, there is a risk that these tax reductions could be absorbed into commercial profit margins instead of lowering costs at the plug.
Because VAT burdens track the underlying value of the electricity, reducing the baseline cost of public charging is an incredibly effective way to shrink the VAT burden.
3. Options for Wider Reform
Fixing the driveway divide requires deeper, structural reform. We are calling for the following solutions to lower underlying costs and level the playing field:
- Equalise VAT Rates: The VAT rate on public charging should be aligned with domestic rates (5% or 0%) to eliminate the tax penalty currently imposed on drivers without off-street parking.
- Expand Time-of-Use Tariffs: Public charge points should offer off-peak and overnight pricing models, allowing street-parked drivers to access the cheaper rates currently enjoyed by home-charging households.
- Reform Grid Infrastructure Costs: Ofgem must reform grid connection costs for public EV infrastructure, particularly given that standing charges for operators have surged by as much as 400% in some cases.
- Adopt Smart Urban Energy Solutions: High-density areas should deploy smart charging and vehicle-to-grid (V2G) technology—similar to pioneering projects in Utrecht—to lower driver costs while easing strain on the local grid.
- Enable Cross-Pavement Solutions: Government bodies must clear regulatory hurdles for pavement gullies, allowing homes without driveways to plug their cars directly into their own domestic electricity supply.
These solutions echo sentiments shared by industry leaders. John Lewis, chief executive of charging provider Char.gy, backed our findings in The Telegraph, noting: “Public charging isn’t a lifestyle choice for millions of drivers, it’s the only option they’ve got. Taxing that at four times the rate of home charging punishes exactly the people the switch to electric is supposed to work for”.
Read the Full Report & Coverage
- 📄 Download the Full Briefing
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📰 Read the Telegraph Feature: ‘Driveway divide’ leaves EV owners £200 worse off under Burnham’s VAT cut
