Petrol prices hit new record high as government axes £1,500 electric vehicle grant

·3-min read
Petrol and diesel prices surged to new record highs as the UK government axed the £1,500 electric car grant. Photo: PA
Petrol and diesel prices surged to new record highs as the UK government axed the £1,500 electric car grant. Photo: PA

UK petrol and diesel prices surged to new record highs on Monday as the government announced it was scrapping the last remaining subsidies for electric vehicles (EVs).

Average pump prices for petrol rose to 185.44p a litre, while diesel hit 191.21p, according to the latest RAC figures.

Drivers could previously use the scheme to claim up to £1,500 towards the cost of a plug-in car costing less than £32,000 through the electric vehicle grant.

However, the Department for Transport (DfT) said that the £300m grant programme will now close to new orders from Tuesday, but existing applications for the grant "will continue to be honoured".

It added the move would free up cash to expand the charging network and encourage sales of other battery-powered vehicles, like vans, taxis and motorcycles.

The DfT said it will "refocus" funding to encourage users of other vehicles to make the switch to electric.

The move has sparked an angry outcry from the automotive industry with experts saying it "sends the wrong message" to drivers and the car sector.

Read more: UK petrol stations face urgent review over fuel duty cut

"The UK’s adoption of electric cars is so far impressive but in order to make them accessible to everyone, we need prices to fall — having more on the road is one important way of making this happen, so we're disappointed the government has chosen to end the grant at this point," said RAC head of policy Nicholas Lyes. "If costs remain too high, the ambition of getting most people into electric cars will be stifled."

Mike Hawes, CEO of the Society of Motor Manufacturers and Traders, said: "With the sector not yet in recovery, and all manufacturers about to be mandated to sell significantly more EVs than current demand indicates, this decision comes at the worst possible time."

Experts warn prices could rise further this week, despite wholesale petrol hitting a peak at the start of the month amid the tightest cost of living squeeze in decades.

RAC spokesperson Simon Williams, said: "The wholesale cost has averaged 150p a litre in the last week which means — when you add 7p retailer margin and 20% VAT — it’s likely to continue to rise towards 188p a litre.

Read more: UK households to go into recession in biggest hit since mid-1950s, warns CBI

"To put things into perspective in April, the unleaded delivered wholesale price averaged 123p a litre and in May it was 139p.

"The situation for diesel, however, is far worse as the delivered wholesale price has averaged a record 158p a litre over the last week which puts the UK average price on a collision course with 198p a litre when retailer margin and VAT are factored in. To change this upward trajectory we badly need the cost of a barrel of oil to drop or the pound to gain ground on the dollar.

"It remains the case that urgent government action is required to lessen the overwhelming tax impact caused by a combination of fuel duty and VAT which currently accounts for nearly 84p in every litre bought — or £46 a tank."

Oil prices rose on Tuesday, with global benchmark brent crude (BZ=F) trading up 0.7% to $123.10 a barrel, while US light crude (CL=F) jumped 0.6% to $121.63.

It comes as the Competition and Markets Authority announced on Monday that it will carry out a "short and focused review" of fuel prices after a request by business secretary Kwasi Kwarteng.

Kwarteng said drivers are "rightly frustrated" that the 5p per litre cut in fuel duty implemented by the Treasury in March has not stopped prices from soaring.

The letter said that despite the government's £5bn fuel duty cut "there remains widespread concern about the pace of the increase in prices at the forecourt and, that prices may not fall as much or as fast as they rise".

Watch: Why are gas prices rising?