New reports from Resolution Foundation, CBI Economics highlight economic benefits of road transport transition
Tue 29 October 2024
View all news
A new report by CBI Economics for ECIU finds that the automotive sector's Gross Value Added (GVA) contribution to the UK Economy could rise by 35% (£16.1bn) or fall by 73% (£34.1bn), depending on how rapidly the sector transitions to manufacture electric vehicles. Meanwhile, a report by the Resolution Foundation says that decarbonising Britain's transport could save households £650 per household on average (at current prices) in 2035.
The analysis commissioned by the Energy and Climate Intelligence Unit (ECIU) reveals the impact on economic growth between a best-case and a worst-case scenario of over £50 billion, greater than the current total automotive sector contributions. The difference in outcome will be determined by how effectively and how fast the UK manages the transition to electric vehicles.
Louise Hellem, Chief Economist at the CBI said: “The UK’s automotive sector is a vital pillar of the UK economy. The shift to electric vehicles presents an opportunity for the sector in harnessing its ingenuity and innovation in an evolving global market; but, like in every country, the transition also presents challenges.
“Our analysis highlights the necessity for a proactive, ambitious strategy to support the sector’s evolution. In this transformative period, it is essential for government and industry to collaborate, ensuring the UK remains competitive globally while building on its rich automotive legacy.”
Colin Walker, Head of Transport at the Energy and Climate Intelligence Unit (ECIU), which commissioned the analysis, said: “Global competition for the investment that will build the factories that manufacture EVs is intense. If the UK attempts to stand still on the transition, it risks repeating the mistakes of the 70s and 80s, leading to a crash in economic output and jobs lost.
“The UK’s car industry has huge strengths and there is enthusiasm to modernise, but Government will need to create the right conditions with incentives and investments to ensure the UK is at the front of the queue to leverage private capital and make the transition to building the electric cars of the future. A huge number of jobs and income will be lost if the UK underinvests, clings to dying technologies, and continues to build cars that our major export markets are moving away from.”
Commenting on the recent announcement of VW's plans to shut at least three car factories in Germany, Colin Walker commented: "This is a sad consequence of an industry that is dragging its heels in making the transition to building EVs, rather than embracing it.
"Here in the UK, 80% of the cars we build are exported, the majority of which go to markets that are phasing out the sale of petrol and diesel cars and shifting to electric. If our car industry doesn't alter production to match these trends, it faces a very uncertain future."
Meanwhile, a report from the Resolution Foundation ('Getting the Green Light') says that decarbonising Britain's transport will be challenging, but doing so effectively could save households a total of £22 billion (£650 per household on average, in current prices) in 2035.
The report says that cars are key to decarbonising travel, and the electrification of road travel is where the majority of potential savings lie, with cars accounting for two-thirds of transport emissions and 84 per cent of non-walking journeys. The report says that the new Government will need to use different tools to encourage continuous uptake of EVs.
It says that recent falls in the purchase price of EVs mean that the previous Government was right to stop subsidising new cars in favour of a sales mandate that puts the onus on manufacturers to bring more EVs to the market. However, generous tax breaks on new EV purchases still exist via salary sacrifice schemes, with higher- and additional-rate taxpayers benefiting most.
The vast majority of those in the richest tenth of households could benefit from a saving of 42 per cent or more on a new electric car, while minimum-earning thresholds exclude half of those in the poorest half of the population. This is a poor use of a subsidy, the report says, and should be scrapped with the savings instead spent for the benefit of all EV users.
The report highlights the fact that drivers without access to off-street charging – which is twice as common for poorer households – will miss out on the majority of the savings available to those who can charge at home. Up to one-in-three households that have to use public charging will be left paying double the price to charge cars as those with at-home chargers.
The Resolution Foundation calls for the benefits of the net zero transition to be more fairly shared by cutting VAT at public charging stations from the higher rate (20 per cent) to that for home charging (5 per cent) and look to "break up local monopolies on public chargers, or even step in to regulate prices".
The report notes that while electrification is already making running cars cheaper, it won’t have the same effect on public transport. This risks encouraging even more people into cars, and inadvertently driving up congestion. Policy makers therefore need to rethink the current provision of discounted rail and bus fares, so that they can target those who will miss out on electrification savings, such as those on lower incomes or without access to a car.
Jonathan Marshall, Principal Economist at the Resolution Foundation, said: “If the UK is to reach net zero by 2050, we need to decarbonise travel, and fast. That’s no easy task when it makes up a third of our carbon emissions. But the cash prize for doing so could be huge, with more than £20 billion of annual savings on the table by the mid-2030s.
“The transition to Electric Vehicles promises to reduce costs to motorists. However, the risk is that without further policy changes those savings could all go to richer households.
“But with universally affordable charging for electric vehicles, targeted discounts for public transport, and more comprehensive carbon pricing for those reluctant to ditch their frequent flights, a fair transition is very much within our reach.”
Zemo Partnership will be publishing a delivery roadmap to net zero transport in early December which will pick up on several of the policy challenges identified in the Resolution Foundation and ECIU reports.
Related Links
< Back to news list