Plug-in vehicles, plugged in policy - Transport Committee Contents

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".[16] 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".[17] The Government's Carbon Plan predicts that low carbon cars will become widespread during the 2020s.[18] However, this will only happen if the public buy these vehicles.

Financial incentives

9. Plug-in cars are more expensive at the point of purchase than conventional cars. This is a key concern for consumers.[19] Price is usually a more important factor in determining which vehicle to purchase than a vehicle's environmental credentials.[20] 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 eligible.[21]
  • 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 charge exemptions.[22]

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.[23] 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.[24] 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."[25] 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."[26]

12. Other witnesses were not so convinced. Dr Berkeley, from Coventry University, told us that "consumer demand is still lagging way behind"[27] and that "the subsidy is really ineffective because the price is still too high".[28] 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 of transport".[29]

13. An additional barrier to widespread demand for plug-in cars is consumer perceptions or knowledge of these vehicles.[30] 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,[31] suggested that "we are probably providing a solution before the public in general understands the need for it."[32] Dr Berkeley argued that " the Government could do more to stimulate demand, particularly in terms of public awareness and public education".[33] 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".[34] 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.[35]

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."[36] Toyota was "surprised" by the announcement and said it "may cause instability in the fleet market and send a mixed message".[37]

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."[38] 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 professional buyers."[39] 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."[40] 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".[41] It stated "we encourage a coordinated cross-departmental approach by Government on policies relating to low carbon".[42] We regret 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.

Departmental underspend

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)".[43]

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."[44] He also said that vehicle sales were "entirely in line" with departmental predictions.[45]

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 vehicle programme.

16   Making the Connection p14 Back

17   Making the Connection p14 Back

18   Carbon Plan p5 Back

19   Ev 21 para 13 Back

20   Ev 24 Back

21   Ev 49 Annex B Back

22   Ev 54 Annex D Back

23   Ev 38 para 10 Back

24   Ev 47 para 13 Back

25   Q102 Back

26   Q108 Back

27   Q4 Back

28   Q7 Back

29   Ev 21 para 14 Back

30   Ev 22 para 16 Back

31   The organisation running the Plugged-in Places programme in the east of England. Back

32   Q29 Back

33   Q6 Back

34   Q56 Back

35   Ev 45 para 4.2 Back

36   Ev 41 para 29 Back

37   Ev 24 Back

38   Q80 Back

39   Q80 Back

40   Q90 Back

41   Ev 24 Back

42   Ev 29 para 6.7 Back

43   Letter from Justine Greening MP to Louise Ellman MP dated 8 June 2012 Back

44   Q114 Back

45   Q108 Back

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© Parliamentary copyright 2012
Prepared 20 September 2012