Rachel Reeves is about to slap drivers round the face again – she’s gone too far this time
Rachel Reeves has another trick up her sleeve to get more money out of drivers – and Luke Chillingsworth says her plan will backfire.
Rachel Reeves is now going after workers with changes to Benefit-in-Kind rules (Image: Getty)
Maybe Rachel Reeves and Ed Miliband have had a big falling out. Miliband’s foot has been pressed hard down on the accelator in his bid to get us all buying electric vehicles as part of his net zero crusade. But Reevesseems less interested in persuading us to help save the world. Saving her job seems to be far more important.
Which brings us to company car Benefit-in-Kind schemes. Workers usually opt-in to these programmes to get their hands on vehicles at a much lower cost. They offer a range of benefits, with car insurance, maintenance and breakdown coverage usually included for a monthly tax paid by employees. Because Benefit-in-Kind charges are paid out of your gross salary, getting a car under the programme will also further reduce an individual’s tax burden.
Benefit-in-Kind charges will increase significantly for electric cars by the end of the decade (Image: Getty)
Benefit-in-Kind fees are based on the car’s P11D value which is made up of the manufacturer’s list price, VAT, delivery charges and optional extras but exclude the first-year registration fee and VED (vehicle excise duty) costs. This P11D Value is then multiplied by the Benefit-in-Kind tax and income tax threshold levels, with road users then paying the total to the Exchequer.
The demand to secure electric or hybrid cars as part of the tax perk has been immense. Between 2023 and 2024, 534,000 company cars with CO2 emissions of 75g/km or less were registered, up from around 369,000 models the year before.
Affordable Benefit-in-Kind rates fees have undoubtedly allowed thousands of workers to get behind the wheel of reliable cars they wouldn’t have been able to otherwise afford. Yes, having a nice car isn’t a human right, but shouldn’t workers getting up at the crack of dawn to put Britain on the map do so without fear of breaking down on the way to work?
But Rachel Reeves can’t help but meddle and is set to strike again with Benefit-in-Kind fees set to rise in 2026 and beyond.Reeves has kept the Conservatives’ initial plan of a 1% annual Benefit-in-Kind rise until the end of 2027/28, with electric cars owing 4% of their car’s P11D value instead of 3% for the year from April 1 2026. But the Chancellor is not stopping there with the confirmation of higher charges come the end of the decade.
Benefit-in-Kind car tax fees will not continue to just jump 1% annually as the Tories had planned, but will start increasing by 2%, with fees to hit a total of 7% in 2028/29 and 9% in 2029/30. Small incremental rises might sound harmless, but when dealing with thousands of pounds in fees, even a 1% rise can lead to substantial price hike.
Those paying 20% income tax and hoping to get behind the wheel of BYD’s latest Atto 3 will pay £301 per year to use the roads in April, instead of the current £226 charge. In 2027, when another rise is factored in, road users will pay £376.
Meanwhile, those same individuals opting for the standard Tesla Model 3 will pay £303 in Benefit-in-Kind rates compared to the current £228 rate. Drivers with the cheapest Nissan Leaf will also feel the blow, with 20% income tax payers charged £232 per year instead of £174.
Hybrid models and some low-pollution petrol and diesel are also affected with a 1% Benefit-in-Kind tax rise affecting all cars emitting less than 159g/km of CO2. Even those opting for budget Chinese cars aren’t safe from rises, with those opting for the popular hybrid Jaecoo 7 set to pay £70 more as fees jump from £630 per year to £700.
The examples go on and on, with workers being forced to stump up more and more cash to use a scheme providing a safe and reliable motor to get to work in the mornings. Her decision to increase the rates by 2% per annum from 2028/29 is short sighted.
Yes, it is still much cheaper than getting a petrol or diesel car where the highest polluting vehicles are paying as much as 37% Benefit in Kind. But we are a nation of sceptics when it comes to electric vehicles and the government’s main chance at persuading people to buy them is by saving them money.
Every time Ms Reeves tries to claw back more money from EV owners the perception will grow that it’s not worth the extra hassle that comes with owning an EV. What might she do next? ‘I didn’t want one anyway – and soon I might not even save any money’. You can easily see what will go through people’s minds.
With electric car sales still not rising fast enough to meet the Government’s targets, retaining or cutting electric and hybrid rates would encourage more road users to take a look at the scheme and maybe switch.
Not only would the move almost certainly get more petrol and diesel cars off the road sooner, but Labour would be directly contributing something positive to a workforce that is crying out for a break.
