Budget 2024: Electric vehicle transition key to economic growth

Chancellor sets out plans to invest in energy and infrastructure

‘Invest, invest, invest’ was the mission that chancellor Rachel Reeves mapped out when setting out the first Budget by a Labour since 2014.

The chancellor justified the controversial rise in National Insurance Contributions (NIC) from employers as way of raising a multi-billion pound sum per a year to be invested in public infrastructure.

Likewise, Reeves’ intention to change fiscal rules will allow for more borrowing to invest and rebuild schools and hospitals, transform the UK into a ‘clean energy superpower’ and get Britain and Northern Ireland on the way to building 1.5 million houses per year.

In her pursuit of growth, Reeves has also promised to create a £70 billion National Wealth Fund to invest in the industries of the future such as gigafactories and green hydrogen, transform the planning system, work with metro mayors on regional growth plans and creating a new industrial strategy.

Reeves commended her Budget to Parliament saying: “The choices that I have made today are the right choices for our country. To restore stability to our public finances. To protect working people. To fix our NHS. And to rebuild Britain. That doesn’t mean these choices are easy. But they are responsible.

“This is a moment of fundamental choice for Britain. I have made my choices. The responsible choices. To restore stability to our country. To protect working people. More teachers in our schools. More appointments in our NHS. More homes being built. Fixing the foundations of our economy. Investing in our future. Delivering change. Rebuilding Britain.”

Electric vehicles

EVs are crucial to decarbonising transport and will support growth and productivity across the UK. The chancellor reaffirmed the government's commitment to restore the 2030 phase-out of new cars and vans relying solely on an internal combustion engine.

The Budget document states the transition to electric vehicles (EVs) is crucial to decarbonising transport and will support growth and productivity across the UK. There are now more than 1 million electric cars on our roads.

The government has committed to phasing out new cars that rely solely on internal combustion engines by 2030 and that from 2035 all new cars and vans sold in the UK will be zero emission. The government is building on this by funding commitments included more than £200m in 2025-26 to accelerate the EV chargepoint roll-out, including funding to support local authorities to install on?street chargepoints across England. The Budget document states this will build on the UK’s existing charging network, which continues to grow at pace with over 70,000 public chargepoints

The Budget states there will be £2 billion to support the automotive sector in increasing production of zero-emission vehicles alongside the continuation of tax incentives to support their introduction. 

To help drive the transition to electric vehicles (EVs) the government is strengthening incentives to purchase EVs by widening the differentials in Vehicle Excise Duty First Year Rates between EVs and hybrids or internal combustion engine cars. The government is also maintaining EV incentives in the Company Car Tax regime and extending 100% First Year Allowances for zero-emission cars and EV chargepoints for a further year.

The government will continue to fund low company car tax rates beyond 2028 to encourage fleet take-up and EV salary sacrifice schemes. However, rates for hybrid vehicles will rise to focus support on electric vehicles.

It will also provide £120m in 2025-26 to support the purchase of new electric vans via the plug-in vehicle grant and to support the manufacture of wheelchair accessible EVs.

However, despite calls from across the automotive sector, the Budget did not include measures to specifically tackle private buyer demand for EVs, either new or used, or to equalise VAT on public and home charging.

There will be continued support for gigafactories and automobile manufacturing in the West Midlands and North East. Gigafactories feature in the Modern Industrial Strategy, offered for consultation earlier this month and due to come into effect next spring. And £2bn has been offered to the automotive sector to build on research and development.

There was also some respite for drivers of petrol and diesel vehicles as Reeves also announced a continued freeze in Fuel Duty (for the fifteenth year in succession).

Energy

Establishing Great British Energy (GBE) is a cornerstone of the Labour government’s clean energy policy. GBE will receive £100m capital funding for clean energy project development and £25m to establish GBE itself, headquartered in Aberdeen.

There will be £1 billion of funding for local energy schemes to help decarbonise the public estate through the Public Sector Decarbonisation Scheme, and there is £3.4bn allocated towards the Warm Home Plan for heat decarbonisation and household energy efficiency over the next three years.

Greater Manchester and West Midlands Combined Authorities integrated settlements will provide local agency in delivering decarbonisation, for example the retrofit pilots of both combined authorities. In this case more continuity for retrofit funding will enable the regions to build up skills and supply chains and ultimately accelerate retrofitting.

Earlier this month the government announced £22bn funding for carbon capture and storage (CCS) projects. In the Budget, Reeves announced there would be 11 new green hydrogen projects across England, Scotland and Wales.

Transport

The transport secretary plans for reform and the transition to Great British Railways will be supported, as will changes to fares, services and workforce practices.

There was also £650m for local transport funding to improve connections across the country and £1.3bn for city transport funding, including the West Yorkshire mass transit scheme.

An extra £200m will be given to Metro Mayors for local transport in 2025/26, bringing City Region Sustainable Transport Settlements to over £1.3 billion.

It was also confirmed that the HS2 rail line will come, as originally planned, into London Euston rather than terminating at Old Oak Common.

The £2 cap on bus fares is to rise to £3 as part of an over £1bn package to support bus services across the country.

Tackling potholes also made a traditional appearance in the Budget, with Reeves announcing £500m in the roads maintenance budget for next year. Reeves said this an almost 50% increase on the commitment made by the previous government for the current financial year, and brings the total amount dedicated to fixing the roads in England over the next year to nearly £1.6 billion.

To encourage active travel, £100m has been set aside for cycling and walking infrastructure.

Air Passenger Duty has not kept up with inflation in recent year, so Reeves is introducing an adjustment that means an increase of no more than £2 for an economy class short-haul flight. But she taking a different approach when it comes to private jets, increasing the rate of Air Passenger Duty by a further 50%.

Local government

Local government will be provided with £1.3bn grant funding for services. The era of devolution sees first integrated funding settlements for Greater Manchester and the West Midlands as well as city and growth deals for parts of Northern Ireland and Scotland.  

The City Region Sustainable Transport Settlements (CRSTS) are supported with a £200m increase that brings local transport spending for Metro Mayors to £1.3 billion or projects such as West Yorkshire mass transit system and Sheffield Supertram.

Beyond the city regions £650m will go to transport connections to improve towns, villages and rural areas.

In a bid to speeding up the planning process, Reeves announced that there would be funding for hundreds of new planning officers across the country.

Housing

The government has pledged to build 1.5 million homes a year. Reeves promised £5 billion for housing overall with an additional £3.1 billion for Affordable Homes Programme, £3 billion of support in guarantees to boost the supply of homes and support smaller housebuilders, and investment to renovate sites across the country including in Liverpool and Cambridge. 

Digital connectivity

To boost digital infrastructure in under-served areas across the UK and support growth in the digital and technology sectors, the government will invest over £500 million in Project Gigabit and the Shared Rural Network next year.
 

Reactions to the Budget

Automotive sector

Mike Hawes, SMMT chief executive, said: “The chancellor is right to set out measures to address the deficit while investing for future growth. The automotive industry is a growth-driving sector, fundamental to the delivery of the country’s net zero ambitions. We therefore welcome today’s commitment of £2 billion of automotive transformation funding as part of the government’s modern Industrial Strategy.

“Delivering that strategy depends on the UK being globally competitive. Additional National Insurance Contributions will put massive pressure on the automotive supply chain which is predominantly SMEs. Next year’s spending review must find resources to fund measures that alleviate the strain on these companies and help them transition to an electrified future.

“A strong manufacturing sector depends on a strong market. The lack of substantive measures to support the new car market – in particular for electrified vehicles – is hugely disappointing. We welcome the extension of the Plug-in Van Grant and company car tax benefits, but these alone cannot drive the growth in demand needed. With the sector challenged to deliver the world’s most ambitious EV transition targets, achievement of those targets is in serious doubt. There must be an urgent review of the market and regulation, else the cost will soon be felt in reduced UK investment, economic growth and jobs.”

Paul Hollick, chair of the Association of Fleet Professionals, said: “The big news in the Budget is the announcement on company car tax rates until 2030, something on which we have been campaigning for some time. With the massive swing towards electric cars seen in the fleet sector in recent years, there was perhaps an expectation that we would start to see benefit in kind begin to creep upwards and I these figures are probably at the lower end of our expectations.

“This new certainty around tax will, in our opinion, maintain the ongoing electrification of car fleets, especially in establishing a marked differential compared to hybrids. Similarly, the increased differential in first year tax rates for electric cars is to be welcomed although, being a one-off cost, will have a much more limited impact.

“The other major element is the surprise ongoing freeze in fuel duty when a removal of the five pence discount was widely predicted. Petrol and diesel prices are historically quite low but this remains good news for fleets who are working hard to keep their spending under control.

“With these two measures, it does seem like a potentially promising start for this government and its policy towards fleets. However, there remains quite a long list of issues that we would like to see resolved in the short-medium term – ranging from 4.25 tonne electric van derogation through to ongoing difficulties surrounding the ZEV Mandate. Conversations covering at least some of these problems are underway and we await their outcome with interest.”

Sue Robinson, chief executive of the National Franchised Dealers Association (NFDA), said: “NFDA welcomes the government’s recognition of the importance of electric vehicles in this year’s Autumn Budget. The chancellor announced the maintenance of existing incentives for EVs in company car tax from 2028. It is crucial that, with the ZEV mandate target set to rise to 28% next year and lagging private demand, there is continued investment in EV infrastructure to help drive adoption across the sector. There was also mention in the Budget of the government’s commitment to phasing out new internal combustion engines cars by 2030.”

BVRLA chief executive, Gerry Keaney, said: “This was a complex budget at a difficult time. The increase to employers’ national insurance will have a substantial impact on businesses and their customers. The full scale of its impact will only be seen in time.

“For our sector, the chancellor has left many challenges unresolved. As penalties to stay in ICE vehicles ramp up in line with the ZEV mandate, more needs to be done. The barriers relating to the rental sector, charging infrastructure, consumer education and the used EV market, all need close attention.

“The Budget did bring some green shoots of positivity, suggesting that the government is taking the UK’s transition to cleaner, greener vehicles seriously. The confirmation that the fair EV company car tax regime will be continued at least to 2030 is a positive step, supporting a vital contributor to the transition and a bright spot of success up to now. Extending the Plug-in Van Grant provides the sector with a much-needed boost.”

EV chargepoint providers

Robin Heap, CEO of EV charging network Zest, said: “Today’s Budget provided the tonic EV businesses like ours had been hoping for. The chancellor made a positive commitment to maintain incentives for the EV transition to keep growing, as well as reaffirming their manifesto pledges on phase out dates. This will in turn enable faster deployment of public chargers and is welcome.

“The Treasury’s policies to reform planning will boost the green sector, and while it may take a while to trickle down, it is a solid start to help the estimated third of drivers over the medium to long-term who won’t have access to home chargers. For those families, availability of on-street charging will be crucial, as a poll by Zest demonstrated recently revealing 60% of Londoners will be looking at public charger availability if moving house over the coming five years.”

Ian Johnston, CEO of Osprey Charging Network: “It’s fantastic news that the government is maintaining tax benefits for working people who lease or buy electric cars, as these are vital to incentivising more consumers to drive electric and to continue the growth of ‘private driver’ EV sales. We look forward to seeing the government maintain a strong ZEV Mandate this autumn to allow the UK to truly realise the multi-billion pound opportunity the e-mobility sector can bring to the UK.”

Reza Shaybani, CEO of The EV Network, said: “We are pleased to see the chancellor recognise that EVs will power the country towards net-zero through significant investment for the automotive industry and incentives for companies transitioning to EVs. To fulfil the government’s commitment to meeting the 2030 electric vehicle target, the next five years will be central in furthering the robust, future-proof national electric vehicle charging infrastructure network that can be accessed by individuals and fleets no matter their location. Labour now must build on its support for the automotive industry and invest in the vital infrastructure that is being scaled across the country to ensure the UK achieves a fit-for-purpose supercharged highway.”

Om Shankar, general manager and vice president of EV charging provider Konect, said: “The government has previously stated its aim to accelerate the roll-out of electric vehicle charging, but the budget falls woefully short in this area. We need a 500% increase in public EV chargers between now and the end of the decade to meet our stated goals and projected EV demand. Consultation is one thing, but sooner or later the government needs to show its hand. Some urgent action and lateral thinking on location of charge points and support for operators is needed.”

Asif Ghafoor, CEO of EV charging network Be.EV: “We welcome the news about the maintenance of incentives for electric vehicles in company car tax which account for 40% of all vehicles on the road. This is the easiest and quickest way to accelerate the EV transition is to get companies and employees to switch to EVs en masse. The £2 billion investment into the EV sector manufacturing is also welcome. There’s no need to spend £200m on charging – key chargepoint operators in the private sector have already committed £6bn to drive the sector forward. Anything which gives us more confidence to deliver this funding is welcome.”?“The only way to speed up the EV transition is to get people to feel good about EVs again. We don’t need money but the next thing the government to do is to finally bring the 2035 ban back to 2030 as promised and get the transition going even faster.”

Motoring groups

RAC head of policy Simon Williams said: “It’s good to see the government firmly recognising the importance of the car to millions of households up and down the country", he continued. “Eight-in-10 drivers tell us they are dependent on their vehicles for the journeys they need to make, while 70% of commuters who live in rural areas have no other feasible alternatives to get to work beyond taking the car. It’s also worth remembering that even as of today 56% of the total price of a litre of petrol is already tax in the form of Fuel Duty, and the VAT that is charged on top.”

James Court, CEO of EVA England, said: “It is great to see the chancellor backing electric vehicles in her Budget, with both an extension to the company car tax and changes to VED, as well as backing British industry with £2bn for manufacturing EVs. Additional funding for charge point infrastructure is also good news for current and future EV drivers as the UK continues to push forward the transition to a cleaner transport system.”

William Porter, policy and public affairs manager at IAM RoadSmart, said: “We welcome the chancellor’s decision to maintain the fuel duty cut, at least for now. Motorists have endured a torrid few years of high prices at the pumps and this decision will give them a much-needed boost. We separately welcome the commitment to introduce the Fuel Finder scheme by the end of 2025, which should increase pricing transparency at the pumps.”

His colleague, IAM RoadSmart director of policy and standards Nicholas Lyes welcomed the proposed £500m investment in repairing potholes: “Any additional funding to fix our crumbling and potentially unsafe roads is welcome, but with one-off repair bill of over £16bn, the amount promised by the chancellor is a drop in the ocean of what is required. Given the risks that potholes pose to both drivers’ wallets and riders’ safety, we need a longer-term approach to funding so councils can prioritise resurfacing work where it is most needed. Increasing vehicle excise duty on all but zero emission vehicles in the first year will hit those buying new conventional vehicles in the pocket. A better solution to incentivise the take-up of electric vehicles  would have been to cut VAT on the sale of new electric vehicles with list price of £40,000 and under.”

Steve Gooding, director of the RAC Foundation, said: “The unanswered question is what happens to motoring tax in the future. Long term, the take up of electric vehicles will erode Treasury income from fuel duty. What anyone in the market for a new car, especially one powered by batteries, wants to know is what the cost of running it will be in the years ahead.

“The chancellor also announced an additional £500m to fix potholes next year. Any money allocated to improve the shocking state of many of our local roads is welcome, but for all the talk of hundreds of millions of pounds, the country’s tens of millions of drivers will only be happy when they see an improvement on the highways they use everyday, those outside their houses. The long-term solution is a long-term funding settlement for councils so they can finally get on top of what has been a perennial problem.”

Technology organisations

Max Sugarman, chief executive of Intelligent Transport Systems UK (ITS UK), said: “Today, the chancellor confirmed an extension to the freeze on fuel duty for another year, but ignored the bigger issue of how the government will offset the revenue loss from falling fuel duty as the UK vehicle fleet transitions to electric. As ITS UK set out in its Budget submission, the UK needs to take a long term approach, and government needs to outline plans for distance-based road pricing that incentivises the fairer and sustainable use of the transport network. ITS UK members have the expertise, skills and knowhow to deliver a national scheme effectively, but require the political vision and will to create a more equitable and future-ready system.

“It is positive to see increased funding for City Region Sustainable Transport Settlements, for EV charging infrastructure, rail projects and road maintenance across the UK. Transport technology has a key role to play in all these areas and in supporting a greener, more efficient and seamless transport network. Whether through better roadside technology, demand responsive transport, mobility as a service or the more effective use of data, we look forward to working with the government to deliver its ambitions for transport.”

Claire Haigh, managing director of the Zemo Partnership, said: “Confirmation of the restoration of the 2030 phase-out date is a positive signal and the support announced for the automotive sector to make the transition to EV production backed by ongoing tax incentives for buyers will help meet the target. However, it's surprising that the chancellor chose to continue the long freeze in Fuel Duty (and to keep the 'temporary' 5p cut in place) while allowing bus fares to rise 50%. This sends an unhelpful signal in terms of modal shift.”

Business organisations

David Wells OBE, chief executive of business group Logistics UK, said: “The chancellor’s decision to freeze fuel duty for a further year is welcome news for the logistics sector. Nothing moves without logistics: the sector supplies our hospitals, schools, factories, shops and homes with everything they need, everywhere, every day. The sector is vital to any plans to stimulate growth across the economy, and this respite is welcome news for a sector already seeing increasing business failures over the last year.

“The sector operates on very narrow margins – often only 2.5% – with fuel representing a large proportion of the weekly operating cost for hauliers. Logistics powers every part of the UK’s economy – it is the UK’s system for growth – and today’s announcement should drive confidence in our sector’s ability to deliver for its customers with confidence.”

Rain Newton-Smith, CBI chief executive, said: “The chancellor had difficult choices to make to deliver stability for the economy and public finances. A more balanced approach to our fiscal rules which prioritises capital investment should help to unlock private sector investment in our infrastructure and net zero transition over the long-term.

“This is a tough Budget for business. While the Corporation Tax Roadmap will help create much needed stability, the hike in National Insurance Contributions alongside other increases to the employer cost base will increase the burden on business and hit the ability to invest and ultimately make it more expensive to hire people or give pay rises.

“Only the private sector can provide the scale of investment required to deliver the government’s growth agenda. To achieve this shared mission of growing our economy sustainably, it’s vital that the government doubles down on its partnership with business to unlock the investment that is needed to drive opportunity around the UK.”

Energy sector

Yselkla Farmer, CEO of BEAMA, the UK trade association for energy infrastructure and systems, said: “The chancellor’s budget has stepped up urgently needed investment tackling the UK’s key decarbonisation heating and transport challenges. Reaffirming the £3.4bn Warm Homes Plan investment is positive but it is essential the government fleshes out the practical details of its approach with cost-effective, impactful measures such as on heating controls and improving indoor air quality to protect health. Incentivising EV uptake for company cars through tax relief is positive for decarbonising transport and alongside the £2bn for UK EV manufacturing will boost this vital sector. However, the freezing of fuel duty continues to send mixed messages to motorists.

“Making big investment pledges sends a valuable political signal but the government urgently needs to grasp the nettle on trickier details that will drive decarbonisation in people’s lives and bring long term financial and quality of life benefits. The UK’s £14bn turnover net zero supply chain is ready to support this but needs a more ambitious policy and regulatory framework to match these financial signals.

“The commitment to 1.5 million new homes is encouraging, but immediate clarity is needed on the Future Homes Standards is crucial so that developers and housebuilders, especially SME housebuilders, can cost and plan accordingly for future much needed housing developments.”

Trevor Hutchings, chief executive of the REA (Association for Renewable Energy and Clean Technology), said: “We welcome the chancellor’s Budget as a significant step forward, underpinned by ambition and a commitment to strengthen the UK’s green economy. The shift in fiscal rules to unlock investment signals a bold departure from previous approaches, opening pathways for new infrastructure and sustainable growth.

“The confirmation of policies like the Carbon Border Adjustment Mechanism, the Warm Homes Plan, and GB Energy funding, along with continued support for electric vehicles and increased funding for the Boiler Upgrade Scheme, all represent positive leaps forward. Yet, there are missed opportunities to drive more ambitious outcomes, such as increasing the Fuel Duty rate and Carbon Floor Price, which could accelerate our transition to net zero. The renewable energy and clean tech sector is a driver of sustainable growth, international competitiveness and prosperity. We stand ready to work with the government to build on today’s announcements.”

Campaign groups

Mike Pierce, executive director of systems change at Climate Group, said: “The chancellor’s decision to continue the fuel duty freeze while not reducing the VAT on EVs is a major missed opportunity to push forward the UK’s transition into a zero-emission transport future and clean air for all. Changes to the first-year tax rates that slightly favour EVs over internal combustion engine (ICE) cars are welcome, but not nearly bold enough to incentive the mass uptake of EVs we need.”

Sarah McMonagle, director of external affairs at Cycling UK, said: “Credit where credit’s due; today the chancellor has helped to recoup funding for active travel that was cut in March 2023 by committing an additional £100m to cycling and walking infrastructure. However, much greater investment is needed if the government is to achieve its ambitious health and economic growth missions. We know that for every £1 spent on cycling and walking schemes, £5.62 worth of wider benefits are achieved. This far surpasses the return on investment for road building.

“We were disappointed to see that fuel duty has been frozen yet again, which means the cost of driving is not increasing in relative terms. Research suggests that in the past, savings from the Fuel Duty freeze have not been passed down to consumers. Revenue raised from an increase in fuel duty could make public transport more affordable, and cycling and walking much safer through more investment in active travel. Increasing investment in walking and cycling stands to benefit us now and in the future. There’s still time to take bold action, and we will continue to impress upon the government the potential for cycling to transform our communities into greener, healthier and more prosperous places to live.”

Paul Tuohy CEO of the Campaign for Better Transport, said: “By choosing to keep the 5p fuel duty cut and continue freezing fuel duty for another year, the chancellor has committed to costing the Treasury a further £4.2 billion in lost revenue. This revenue could have nearly quadrupled support for English bus services, benefitting millions of passengers and preventing vital services from being cut. The government talks of delivering on the environment yet undermines itself by failing to adequately tax our most polluting forms of transport and support the most sustainable. It’s about time the Treasury reconsidered its priorities when it comes to transport.

“We are pleased that the chancellor has listened to our calls to raise Air Passenger Duty for private jet passengers. Private jets are up to 14 times more polluting than commercial flights, and it is absolutely right that private passengers pay more for the damage they cause.  We also welcome the chancellor’s decision to raise Air Passenger Duty on domestic flights. We hope that the revenue raised will be put towards making sustainable public transport more affordable so that when travelling domestically, the train is the easiest and cheapest choice. The government must now go even further by introducing a tax on aviation fuel to raise an additional £594m a year.

“It is right that High Speed 2 reaches Euston, and we are pleased with the announcement made today. Connecting HS2 to London for connections to the European continent and beyond is vital to unlock all of the economic growth that the scheme offers. With a West Coast Main Line bursting at the seams, it is essential that government now examines possible replacements for HS2 north of Birmingham to Manchester, and to Leeds, to expand rail capacity and improve connectivity across our country.”