Spring Statement

Chancellor Rachel Reeves has delivered the Spring Statement 2025, outlining the government’s fiscal strategy in response to ongoing economic challenges. With a commitment to one major fiscal event per year, the next Budget will come in the Autumn following the Government’s Spending Review in June.

This year’s statement highlights rising public debt, increased defence spending and reforms to welfare but with no major surprises to businesses and motorists. However changes to vehicle excise duty (VED) remain a key consideration for fleet operators.

After a busy Autumn Budget – which included company car tax bands to 2030 and extensions to the fuel duty freeze and Plug-in Van Grant – we weren’t expecting many significant announcements from the Chancellor this time around. And, against a backdrop of cuts to benefits and government spending, motorists should perhaps be glad to avoid any unexpected rises in today’s announcement.

However, the lack of big announcements in the Budget effectively confirms some incoming changes to vehicle excise duty (VED, or ‘road tax’) – effective from 1 April 2025. The key points are as follows:

Small tax rises for most vehicles

Incoming changes to Vehicle Excise Duty (VED, or ‘road tax’) have caused widespread confusion since they were announced by former Chancellor Jeremy Hunt in 2022. That’s hardly surprising, as there are four different systems in place for cars and another three for vans. However, most vehicles won’t get a large tax hike at their next renewal.

VED rates rise with inflation each year, and these come into force on 1 April 2025. Cars registered since 1 April 2017 will go up by £5, to £195, vans will rise by £10 to £345, while the Expensive Car Supplement will increase by £15, to £425 – however, that supplement only applies to the first five tax renewals for vehicles priced over £40,000. Older vehicles, which are taxed based on CO2 emissions or engine size, will get the same proportionally small increase next year.

The exception is electric and hybrid vehicles, which will be taxed at the same rate as their petrol and diesel counterparts - £195 for cars and £345 for vans. However, electric vehicles registered before 1 April 2025 will continue to avoid the £425 Expensive Car Supplement. Pre-2017 cars with CO2 emissions under 100g/km will also lose their VED exemption moving into the £20 tax bracket from this year. That’s still much lower than newer models.

In summary, if your car or van is already on the road before 1 April 2025 and it isn’t electric or hybrid, then your VED bill will only rise in line with inflation – as it has in previous years.

No adjustment to the Expensive Car Supplement

New cars bear the brunt of next year's tax changes, and it was disappointing that the Chancellor hasn’t delivered on a key promise from the Autumn Budget. This has left fleets and private motorists in the dark about a tax policy that could cost electric vehicle drivers an additional £1,300 over a four-year lease contract.

However, the Chancellor has also made moves to disincentivise non-EVs. From 1 April 2025, the first-year rate for new cars - paid at registration - will double for cars with CO2 emissions of 76g/km or more, adding between £135 and £2,745 to the ‘on the road’ price. That should help close the price gap with plug-in hybrid (between 1-75g/km) or electric cars (0g/km), which get a £100 and £10 rise respectively in their first-year VED rates from the same date.

Electric cars registered from 1 April 2025 will attract the £425 Expensive Car Supplement on top of their first five annual tax renewals, if they’re priced at £40,000 or more. That’s a £620 VED bill in 2025/26, and it will rise in line with inflation before those vehicles reach their first tax renewals next year.

The threshold was set in 2015, when the Coalition government calculated it would affect only 5% of registrations, but today it disproportionately affects EVs. Around 80% of EVs are priced over £40,000, while in some cases an equivalent petrol, diesel or hybrid car would avoid the supplement.

The Autumn Statement promised an adjustment for EVs in a “future fiscal event” but, with only a few days before the first affected vehicles are delivered, the Treasury hasn’t announced anything yet. Fleets rely on long-term fiscal policies when ordering vehicles, so it’s frustrating that this certainty is being left until the last minute.

A £31m tax burden for electric vans

The flat VED rate for electric vans will also be equalised with petrol and diesel models from 1 April 2025 and backdated to include all vehicles registered since March 2001. It’s a change that affects an estimated 90,000 electric vans on UK roads, amounting to a £31m tax burden for British businesses next year.

It’s no secret that the UK’s electric van market is already stalling – 2024’s 6.3% market share, according to the SMMT, has barely changed year on year and is behind the 10% required by the ZEV Mandate.

Despite growing pressure on fleets to reduce CO2 emissions, operators are facing challenges with reduced payload and range, charging networks with spaces designed for cars, and additional administrative burdens for the largest vans. An additional £1,000 per-vehicle VED burden feels premature against that backdrop.

Sources and further reading

Spring Statement 2025, HM Treasury Spring Statement 2025 - GOV.UK

HM Treasury - Spring Statement 2025: Rachel Reeves speech, Spring Statement 2025 speech - GOV.UK

Office for Budget Responsibility, March 2025 forecast timetable and details regarding the upcoming EFO - Office for Budget Responsibility

Institute for Fiscal Studies – A look ahead to the 2025 Spring Forecast, A look ahead to the 2025 Spring Forecast | Institute for Fiscal Studies