2 Consumer demand |
8. By 2015 the Government expects that we will "see
tens of thousands of plug-in vehicles on the roads in the UK".
After that, "independent forecasts suggest that hundreds
of thousands of plug-in vehicles could be on the road by 2020"
or possibly an "even more rapid rate of growth".
The Government's Carbon Plan predicts that low carbon cars will
become widespread during the 2020s.
However, this will only happen if the public buy these vehicles.
9. Plug-in cars are more expensive at the point of
purchase than conventional cars. This is a key concern for consumers.
Price is usually a more important factor in determining which
vehicle to purchase than a vehicle's environmental credentials.
In order to encourage consumer demand for plug-in vehicles, the
Government offers a number of financial incentives to reduce their
up-front cost. These incentives include:
- The Plug-In Car Grant: this
was launched on 1 January 2011 and is aimed at both private consumers
and businesses. The Grant offers 25% off the vehicle price, up
to a value of £5,000. Eligible vehicles can be electric,
plug-in hybrid or hydrogen-fuelled, but must comply with certain
performance, environmental and safety standards in order to be
- Tax treatment: ultra-low emission vehicles can
benefit from tax exemptions including from Vehicle Excise Duty,
reduced Company Car Tax and other local measures such as congestion
The Government hopes that these incentives will encourage
more widespread adoption of plug-in cars, in line with the carbon
reduction targets outlined in its Carbon Plan.
10. The Plug-In Car grant was launched in January
2011. In 2011 1,052 eligible plug-in car grant vehicles were
registered, compared to 111 in 2010.
We have heard conflicting reports about whether the rate of plug-in
car purchases is on track with the DfT's ambitious predictions
and whether the financial incentives on offer are effective.
11. The DfT believes that the introduction of the
plug-in car consumer incentive scheme has had a positive effect
on the demand for these vehicles.
Norman Baker MP , Minister for sustainable travel, told us that
the DfT monitored the sales of low carbon vehicles and they are
"on a trajectory on the way up."
He was "entirely relaxed about the number of cars that have
been sold" as this was "entirely in line with where
we thought it was going to be."
12. Other witnesses were not so convinced. Dr Berkeley,
from Coventry University, told us that "consumer demand is
still lagging way behind"
and that "the subsidy is really ineffective because the price
is still too high".
We were warned of the risk that the Government was subsidising
second cars for affluent households, as plug-in cars were being
purchased as a "support vehicle rather than a primary mode
13. An additional barrier to widespread demand for
plug-in cars is consumer perceptions or knowledge of these vehicles.
We heard that a lack of consumer awareness about the availability
of incentives or infrastructure contributed to lagging demand
for low carbon vehicles. Dr Bevis, of Evalu8 Transport Innovations
Ltd, suggested that
"we are probably providing a solution before the public in
general understands the need for it."
Dr Berkeley argued that " the Government could do more to
stimulate demand, particularly in terms of public awareness and
Dr Bevis suggested that part of this lack of education arose
from restrictions placed on funding to support the installation
of chargepoints through the Plugged-In Places scheme as "we
are not paid to do the other nice things such as engaging with
the public. We are paid to build the infrastructure. Providing
freedom in that spend to do these other things would help".
If the Government wishes to encourage take up of plug-in vehicles,
it must do more to publicise the support and infrastructure which
is available. We recommend
that the Government promotes public understanding of the availability
of infrastructure and the support available for plug-in vehicle
purchases. There should be provision in Plugged-In Places funding
to undertake such initiatives.
Recent changes to financial incentives
14. The March 2012 Budget announced a number of changes
to the financial incentive programme for low carbon vehicles.
General Motors commented on these changes as follows
We were disappointed with the recent announcements
in the 2012 budget relating to low carbon vehicles. In order
for low carbon vehicles to be successful they require a taxation
system that encourages their uptake. Increasing the company tax
rate for low emission vehicles after 2015 and preventing leased
business cars being eligible for first year capital allowances
will not help this. This has made purchasing a plug-in vehicle
less attractive to the corporate consumer with little overall
benefit to the Exchequer.
This disappointment was echoed by other industry
representatives. The Society of Motor Manufacturers and Traders
(SMMT) stated "such unexpected announcements cause instability
in the fleet market and provide mixed messages on market support."
Toyota was "surprised" by the announcement and said
it "may cause instability in the fleet market and send a
15. In addition to the potential financial impact
of this change, industry witnesses told us that the perception
that financial incentives were changeable was also problematic.
Ian Allen, from Vauxhall, told us that such instability was particularly
problematic in a "fragile, fledgling market."
Graham Smith, from Toyota, concurred that "there are plenty
of reasons why consumers might be cautious about a new technology.
Therefore, anything that changes and destabilises the regime
in within which that purchases takes place [...] will affect particularly
He argued that this change should be reconsidered and that "there
is an opportunity to reverse what is a fairly negative signal
towards the auto sector in the UK were those changes to be reconsidered."
Toyota argued that "continuation and stability of such measures
is important to avoid retreating too early from the incentive
frameworks" as this "could negatively impact the consumer".
It stated "we encourage a coordinated cross-departmental
approach by Government on policies relating to low carbon".
the Treasury's decision to change the financial incentives framework
for low carbon vehicles without prior consultation. Such unexpected
changes to these incentives risk creating instability in the market
for plug-in vehicles.
16. The DfT's 2011-12 mid-year financial review highlighted
a £300 million DEL underspend. Secretary of State Justine
Greening MP wrote to us to explain that this underspend had arisen
from a number of budget lines. She noted that a contributory
factor was underspend resulting "from low take-up on the
ultra-low carbon vehicle programme (£30 million)".
17. This seemed to differ from the interpretation
of these results by Mr Baker, who said "we are on target
to spend £11 million by the end of 2012-13 from a budget
of £30 million. That is good news. That means we have managed
to achieve the uptake and the installation of charge points with
the private sector without having to commit as much money as we
might otherwise have done from the public sector."
He also said that vehicle sales were "entirely in line"
with departmental predictions.
18. It seems to us that the Secretary of State and
her Minister have differing interpretations of the budget underspend
on low carbon vehicles. The former told us that the budget underspend
arose because there has been "low" take-up on this programme,
whilst Mr Baker believes the underspend reflects greater private
sector involvement to support a programme that is progressing
entirely according to forecasts. The
DfT should clarify the reasons for the underspend in its low carbon
16 Making the Connection p14 Back
Making the Connection p14 Back
Carbon Plan p5 Back
Ev 21 para 13 Back
Ev 24 Back
Ev 49 Annex B Back
Ev 54 Annex D Back
Ev 38 para 10 Back
Ev 47 para 13 Back
Ev 21 para 14 Back
Ev 22 para 16 Back
The organisation running the Plugged-in Places programme in the
east of England. Back
Ev 45 para 4.2 Back
Ev 41 para 29 Back
Ev 24 Back
Ev 24 Back
Ev 29 para 6.7 Back
Letter from Justine Greening MP to Louise Ellman MP dated 8 June