This week I found myself looking at our ageing Ford diesel a little differently. Many years have passed since the decision was made that this was the most financially viable option for our family. But the truth is, that decision no longer holds.
This month road tax rose again. For most petrol and diesel cars registered after 2017, the standard rate increases to £200 a year. On its own that is hardly catastrophic, but for higher-emission vehicles this sits on top of already sizeable annual bills.
We have already taken one step. We trimmed the second car from this household some time ago, and the saving from that alone was considerable. But for our one remaining vehicle, tax is only part of the story. There is the fuel, and we all know which direction that has been heading. There is general wear and tear and the slow, relentless drift upward in servicing costs. Laid on top of each other, these things become a financial argument that demands attention.
Which is what has me thinking, more seriously than before, about bringing forward my plans to go electric.
Not because it feels virtuous. Not because I am drawn to the idea of a gleaming new car (though I will admit that has a certain appeal). But increasingly the financial case for sticking with petrol or diesel is starting to weaken.
If you are driving about 10,000 miles a year, the fuel savings alone begin to count. Switching to electric could save about £1,000 a year compared to a petrol or diesel car. For those fortunate enough to charge at home, as I am, that saving rises to about £1,400.
There are also policy changes nudging things in the same direction. This month the threshold for the expensive car supplement on electric vehicles rose from £40,000 to £50,000. That means more electric cars will avoid the additional £440 annual charge that applies to higher-value vehicles. Again, on its own, not transformational. But combined with everything else it shifts my mindset.
Then there is the part of the equation that is often overlooked, and for some households, including ours, the most powerful of all. Salary sacrifice.
Here is how it works. Your employer leases an electric car and makes it available to you. Rather than paying for it from your take-home pay, the cost is deducted from your gross salary before tax and National Insurance are calculated. The result is that you are, in effect, paying for a car with pre-tax income.
For a higher-rate taxpayer, that is a 40 per cent saving on the lease cost before you have even started. For a basic-rate taxpayer, the saving is 20 per cent, plus the national insurance relief on top. A lease that costs, say, £500 a month becomes, in practice, roughly £275 to £300 per month to a 40 per cent taxpayer in real terms once tax and NI savings are combined.
On top of that, electric vehicles attract a much lower benefit-in-kind rate than petrol or diesel cars. For the current tax year, that rate starts at just 4 per cent, rising gradually in the coming years but still remaining relatively low at 9 per cent by 2030. Compare that to the significantly higher rates applied to higher-emission vehicles (as much as 37 per cent), and the annual difference can be as much as £2,000 for a diesel company car compared to £120 for an EV.
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In practical terms, a higher-rate taxpayer could see the effective cost of an electric car reduced by 40 per cent or more once tax and national insurance savings are taken into account. Add in the fuel savings and, in many cases, maintenance and insurance bundled into the lease, and what initially looks like an expensive monthly commitment can become surprisingly competitive.
Which brings us to the next question. Lease or buy? Of course, the decision here is more personal, but equally getting the maths right really matters.
Leasing suits those who want predictability. You pay a fixed monthly amount, hand the car back at the end of the term, and never have to worry about depreciation or the residual value of a technology that is still evolving rapidly. Given that battery technology and range are improving year on year, locking yourself into ownership of today’s electric car may mean missing out on significantly better options in three or four years. For electric vehicles in particular, leasing insulates you from that risk entirely.
Leasing also includes road tax in most personal contract hire (PCH) agreements, and manufacturers tend to bundle in servicing packages. The all-in monthly cost can be remarkably predictable.
The main drawback is that you build no equity, and if you exceed the agreed mileage, excess charges can be painful. Those who drive more than 12,000 to 15,000 miles a year should model this carefully before committing.
Buying outright or through a personal contract purchase (PCP) makes most sense if you drive high mileage, intend to keep the car for many years, or want to own an asset. But for electric vehicles specifically, the depreciation question is live. The market for used electric cars has been volatile, and residual values are harder to predict than for equivalent petrol vehicles.
The sweet spot for many people, particularly those using salary sacrifice, is leasing. Within a salary sacrifice scheme, you are typically taking a new lease every two to four years, which means you will always be driving a reasonably current vehicle with a good warranty, while continuously reducing your taxable income and keeping your monthly transport costs predictable.
None of this means the decision is simple. Electric cars are still expensive. The upfront figures can feel prohibitive, and the 3p per mile set to come in in 2028 could sway the landscape again.
We are certainly not rushing into anything. But what has changed for me is this: I can no longer justify doing nothing. When the cost of one option rises steadily, and the alternative becomes consistently more competitive, there comes a point where inaction becomes costly.
