Business

Electric car subsidy spared cuts by government

William Hague drives a Nissan Leaf
Image caption The government has shown support for UK manufacturing of electric cars

Motorists who buy an electric plug-in car from January next year will get a grant worth up to £5,000 from the government.

The project was announced by Labour but placed on hold by the coalition until the autumn spending review.

Now the Treasury has taken the highly unusual step of agreeing to ring-fence the money from any cuts.

Car makers had been putting pressure on the new government to announce what was happening to the electric car subsidy.

They had warned that without it, the UK would be significantly less attractive for new investment.

'Absolutely committed'

The sheer scale of budget cuts needed across government departments - with the distinct possibility that transport might fare worse than most - had placed the scheme in doubt.

Now the government says the £43m earmarked for the scheme will be protected.

It means that anyone who buys an electric plug-in car from next year will get a 25% discount up to a maximum of £5,000.

"The coalition government is absolutely committed to low carbon growth, tackling climate change and making our energy supply more secure," said Transport Secretary, Philip Hammond.

"We are sending a clear signal that Britain is open for business and that we are committed to greening our economy.

"This will ensure that the UK is a world leader in low emission vehicles.

"We will review the level of the incentive regularly to ensure that the UK remains competitive and taxpayers get value for money."

Barriers

The extra help is not expected to make up for the extra cost of the vehicle - which could be about £10,000 more expensive than its petrol equivalent.

However owners could save hundreds of pounds a year in running costs.

The subsidy will come into force at the same time as a rise in VAT.

The increase from 17.5% to 20% adds almost £640 to the cost of a £30,000 car.

One possible barrier to people adopting electric cars is the lack of dedicated plug-in points - with there currently only being about 300 across the UK.

But Nissan - whose Leaf car will be on sale in the UK from March - argues this is misleading.

It says the evidence from Japan is that people do not buy electric cars until the charging points are in place - but then do not actually use them, preferring to charge at home instead.

Grant offer

Rapid-charge plug-in points, which can charge a car to 80% capacity in less than half an hour, are not likely to be the way most people "refuel".

Electricity overnight can be significantly cheaper and motorists can plug their car in and leave it, rather than having to wait.

That works as long as the motorist's daily use is not more than the range of the car - 100 miles in the case of the Leaf.

However that also depends on users not draining the battery in other ways such as using the heating or air-conditioning.

The grant is open to both private and business fleet buyers across the UK.

It will stay in place - assuming the money does not run out - until 31 March 2012.

The level for subsequent years will be set according to how the market develops and what happens to the cost of the cars.

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