Budget 2011 and Environmental Taxes

Written evidence submitted by Axeon

1. About Axeon

1.1 Axeon is a leading UK technology business which designs and manufactures advanced lithium-ion battery systems for electric and hybrid electric vehicles (EVs and HEVs). Headquartered in Dundee, Scotland, Axeon is the only UK-based high tech battery manufacturer.

1.2 Axeon has a proven track record; vehicles powered by Axeon lithium-ion battery systems have driven well over a million miles on the roads of Europe and the US.

1.3 We continue to invest in our UK-based R&D centre to be at the cutting edge of battery technology, cost competitiveness and product performance. We are currently working on several technology development programmes, four of which are part funded by the UK Government’s Technology Strategy Board. As a result of this support and collaboration with several other UK based automotive businesses we are now winning significant orders for mainstream automotive projects, which will give the UK a significant presence in this rapidly growing new sector, and support the UK Government’s objective of developing green, high tech manufacturing businesses vital to the UK economy.

1.4 As a spin-off to the original automotive technology, Axeon is also looking at energy storage in the renewable energy sector – another important new industrial sector if the UK is to meet its climate change targets.

2. Introduction

2.1 We very much welcome the Environmental Audit Committee’s new inquiry into the Budget 2011 and green taxes. We believe there is a long way to go before the transport sector will be in a position to make its full contribution to the UK’s demanding climate change targets.

2.2 It is worth noting that at present low-carbon vehicles do not pay Vehicle Excise Duty (VED) and if purely electric do not pay Fuel Duty either. Hence, in the longer run, the loss of the tax revenue presently raised by these two duties will require the Government to give considerable thought to a different structure of taxation in the transport sector.

2.3 However, in the shorter term, the issue of achieving our climate change goals is essential to encourage a critical mass of consumers - both in the public and private sector - to switch to electric or hybrid vehicles for their transportation. EVs have clearly been identified as the most effective way to de-carbonise transport in the short to medium term and are therefore essential to the Government’s ambitious climate change targets.

2.4 Research indicates that a key inhibitor of the growth of the EV market is cost. In general, the evidence suggests that private consumers are less likely to take into account the overall cost of an EV, which involves a higher purchase price but lower running costs, when making decisions about purchasing cars. Hence we believe there is much to gain by introducing measures which reduce costs at the point of purchase.

2.5 Whilst we welcome commitments made in the Budget 2011 to incentivise low-carbon company cars, we believe that more needs to be done to stimulate the EV market. An attitudinal survey conducted by the Department for Transport in 2011 found that 55% of respondents supported higher taxes to try and stop people buying cars with high CO2 emissions.

2.6 We have commissioned work, in collaboration with others, in this area with a view to helping the Scottish Government formulate its policies, and whilst we are not in a position to send that document to you, we thought that it may be of use to summarise its main conclusions. In the interests of brevity, we have given only a brief summary of the measures we believe would be helpful. If you would like more details, please do not hesitate to be in touch.

3. Responding to the Budget

Fuel duty

3.1 While measures announced in the Budget to limit fuel increases were an understandable response to current economic circumstances, rising fuel prices will in fact do more to encourage the uptake of electric vehicles. The Department of Transport’s January 2011 survey, Public Attitudes to Climate Change and the Impact of Transport, noted that after purchase cost, fuel costs are the most important cost when buying a car. An increase in fuel duty could therefore encourage consumers to switch to EVs. A report commissioned by the RAC Foundation in January 2011 also cites evidence from both the UK and US that increases in fuel prices result in a preference for fuel-efficient vehicles and changes in driving habits. In response to the fuel price peaks in 2008, followed by the global economic downturn, the UK market has seen a marked shift to smaller, more fuel-efficient cars, a trend which could continue to benefit the EV market if fuel prices were to increase.

Company Car Tax

3.2 Measures to freeze Company Car Tax for low-carbon vehicles and increase levies for more polluting vehicles from April 2013 are welcome. Historically data shows that, until the fuel price peaks in 2008, the Company Car Tax system was the main incentive driving the reduction of new conventional car CO2 emissions.

Capital Allowances

3.3 Extending the limit on the capital allowances short life assets election is another welcome move for the manufacturing industry. However, in addition, we would encourage the Government to consider providing additional enhanced capital allowance tax exemptions for business. This would extend the existing scheme for low carbon cars until 2020, and widen eligibility to a larger range of vehicles and recharging infrastructure.

Vehicle Excise Duty

3.4 The freeze in Vehicle Excise Duty rates for cars emitting less than 95g per kilometre is a welcome measure. However, anything that can be done to increase the price differentials between adjacent bands for vehicle excise duty, which in turn increases the financial benefit of EV ownership, would be a boost for the EV market. Evidence suggests that VED is not (at current levels) a sufficiently strong price signal to incentivise the purchase of lower CO2 cars. If the band was larger however, VED could be expected to have an impact.

3.5 A key recommendation would be the introduction of a Feebate scheme, a revenue-neutral incentive programme involving increasing the tax levied on the purchase of relatively high CO2-emitting vehicles and providing rebates for lower CO2-emitting vehicles.

Registration Tax

3.6 In general, evidence suggests that private consumers are less likely to take future reduced running costs into account when purchasing an EV, instead prioritising the purchase cost. Hence we believe there is much to gain by measures which reduce costs at the point of purchase. Since the EV market is still at an early phase, there is currently no second-hand market. This means that when purchases are made, they are for brand new vehicles. Consequently, a move to levy a registration tax for new vehicles scaled on the basis of CO2 emissions could also have a beneficial effect on the uptake of EVs. This measure would involve increasing the ‘first year rates’ for high CO2-emitting vehicles to give EV buyers a financial benefit of between £2,000 and £5,000.

4. Wider Recommendations to boost the EV market

4.1 The Government to produce an Electrical Vehicle Infrastructure Strategy setting out a clear vision for the future and a strategy for the provision and roll out of appropriate recharging infrastructure.

4.2 The Government to set technical standards, specifications and regulations for implementing a recharging infrastructure.

4.3 A review of the possible market models for recharging infrastructure and work with relevant stakeholders to agree a market model identifying key roles and responsibilities for energy providers, electricity retailers, EV manufacturers, private infrastructure providers and the public sector; and pricing and payment approaches; and customer interface requirements (single or multiple points of contact).

4.4 The Government and local authorities to provide funding for publicly accessible recharging points.

4.5 The Government and local authorities to incentivise businesses to install recharging points. This would involve engaging directly with the largest businesses with employee car-parks to highlight the benefits of encouraging use of EVs rather than conventional vehicles; by providing free advice; and by providing match funding to ‘innovator’ and ‘early adopter’ businesses wishing to install recharging points in existing parking spaces.

4.6 The Government to prepare advice for residents on home recharging and guidance for electricians on the type of facilities needed (including issues to be considered in communal parking areas). Local authorities to disseminate information.

4.7 The Government to provide national planning guidance on the provision of recharging bays and infrastructure in local authority areas as part of a parking strategy which supports wider sustainable transport objectives.

4.8 The Government to update building regulations to set out minimum requirements regarding the provision of electrical infrastructure and recharging points in new buildings.

4.9 The formulation of a Working Group to address electricity generation and distribution requirements for EVs.

4.10 Local authorities to work with existing car club operators to introduce EVs into fleets and introduce EV-based car clubs in other cities. This would involve local authorities: engaging directly with existing car clubs to raise awareness of EVs and their benefits; using car clubs instead of purchasing their own fleet cars; procuring vehicles directly for car clubs using their considerable purchasing power to lever favourable purchase prices or lease contracts; investigating the feasibility of working with manufacturers to set up a publicly funded electric car share scheme.

4.11 Encourage manufacturers to offer alternative ownership models to consumers in the UK by promoting the UK as an attractive market for manufacturers, and engaging with manufacturers to understand and influence their decisions about where to focus their sales strategy.

4.12 The Government to provide subsidies up until 2020 of at least £5,000 in the initial years with the level of subsidy reducing as EV uptake increases.

4.13 The Government to introduce a targeted scrappage scheme to encourage consumers to purchase electric vehicles, with subsidies reducing as EV uptake increases.

4.14 The Government to provide grants for purchasing second hand EVs from specified dealers, with subsidies reducing as EV uptake increases.

4.15 The Government, local authorities and other public sector organisations to support an earlier than average switch to low carbon emissions vehicles for public sector fleet vehicles (cars and vans) through procurement policies.

4.16 The Government to support and fund research needed to enable rapid EV uptake.

4. 17 The Government to lobby the EU to increase the EU target for the emissions-intensity of new cars and vans produced by manufacturers.

20 April 2011