How could tax changes challenge the UK’s fragile new-car market?

06 November 2025

The UK saw a small improvement in new-car registrations in October. How could potential government taxation changes challenge this growth? Autovista24 special content editor Phil Curry examines the market.

The UK’s new-car market remained stable in October, with a small 0.5% rise in deliveries. According to the latest data from the SMMT, 144,948 passenger cars were registered in the month. This was just 660 units more than in October 2024.

While the numbers are comparable, the powertrain split has changed dramatically in the last 12 months. Internal-combustion engine (ICE) models are no longer the dominant force in the monthly figures.

Electrified models, including full hybrids (HEVs), plug-in hybrids (PHEVs) and battery-electric vehicles (BEVs), led for the second month in succession.

Across the first 10 months of 2025, UK registrations were up 3.9% with 1,723,120 deliveries. This has been helped by the strong performances in the plate-change months of March and September. These months helped counter five months of declines across the year so far.

The SMMT’s quarterly industry outlook suggests new-car registrations will top two million units for the first time since the pre-COVID-19 pandemic period of 2019. This year is forecast to reach 2.01 million, while the country is expected to see 2.03 million deliveries next year.

Employee Car Ownership challenge

The UK’s new-car market looks set to beat figures from 2019 for the first time since the pandemic. However, there are looming threats that could scupper further recovery in the coming years.

The ending of Employee Car Ownership Schemes (ECOS) is one such challenge. Operated by manufacturers and dealers, these allow employees to buy new cars at reduced prices. This enabled lower monthly repayments and at a low rate of interest.

The Autumn Budget of 2024 laid out plans to end ECOS by April 2026. However, this date has now been pushed back to October 2026. These vehicles will now be categorised as company cars and taxable benefits.

According to the government, this will add £275 million (€312 million) to the exchequer between 2026 and 2027. It states that an estimated 76,000 individuals will become liable for the income tax associated with the benefit in kind (BIK).

‘These individuals may now need to pay the appropriate benefit-in-kind charge or seek an alternative arrangement with their employer. Impacted employees may choose to retain the current vehicle through a normal car scheme, choose a lower-emitting (lower tax) vehicle or choose to go without a company car altogether,’ the government stated.

Revenue lost

The SMMT argues that plans to end ECOS will impact the UK’s automotive market. It could prevent employees from accessing cars at a more affordable price point, while also challenging electric vehicle (EV) adoption. As these cars are expensive, ECOS puts them within reach of many industry workers.

‘With around 100,000 cars supplied via ECOS a year – equivalent to around 5% of the annual new car market – such a step would depress growth and seriously impact the nearly new and used markets,’ the SMMT stated.

‘More than £1 billion in revenue would be lost to industry and 5,000 manufacturing jobs put at risk. Additionally, the Treasury would incur a £500 million hit from lost VAT and Vehicle Excise Duty receipts. The total cost would be more than double that allocated to the Electric Car Grant (ECG), effectively wiping out the growth it is intended to stimulate,’ the body added.

Pay per mile plans for BEVs

A further threat could be announced in the 2025 Autumn Budget. The Telegraph reported that Chancellor Rachel Reeves is expected to unveil plans for per-mile road charging, targeting BEV drivers. Drivers of hybrids also look to be affected by the additional cost, but to a lesser extent.

The plans would see all-electric owners pay 3p per mile, with annual payments based on estimates. Should these prove inaccurate, top-up payments would be required, or any overspend would be rolled into the following year. The plans would help balance lost fuel duty revenue.

According to the publication, the average BEV driver would pay an extra £250 a year. The move looks to be framed as one of fairness, with owners of petrol and diesel cars paying £600 on average in fuel duty.

Yet the plans could distort the total cost of ownership on BEVs, especially for those without off-street parking. The government is reducing red tape, allowing councils to install gullies between properties and roads, enabling on-street parking and charging. However, this requires the ability for drivers to park outside their homes. It does not consider those living in flats, without access to dedicated parking spaces.

In this instance, drivers using only rapid or ultra-rapid chargers would pay around 24p per mile for the energy they use, according to the RAC. Using a home charger, the RAC indicates a charging cost of 8p a mile. With the government plans, 3p would be added on top of every mile. Meanwhile, with fuel duty included, drivers of petrol cars pay around 15p a mile.

Increased ownership challenge

‘We recognise the need for a new approach to motoring taxes, but at such a pivotal moment in the UK’s EV transition, this would be entirely the wrong measure at the wrong time,’ commented the SMMT.

‘Introducing such a complex, costly regime that targets the very vehicles manufacturers are challenged to sell would be a strategic mistake. It would deter consumers and further undermine industry’s ability to meet zero-emission vehicle (ZEV) mandate targets, with significant ramifications for perceptions of the UK as a place to invest. A smarter, fair and future-ready taxation system requires a fundamental rethink, one that must be done in full partnership with the industry and other stakeholders,’ the body added.

The automotive market is already tackling the introduction of vehicle excise duty (VED) for electric cars this year. Additionally, many models are now eligible for the Expensive Car Supplement (ECS), increasing their annual tax cost.

The ECG, introduced earlier this year, has also had a small impact on BEV registrations. Only two cars, the Ford Puma Gen-E and Ford E-Tourneo Courier, are eligible for the full £3,750 subsidy. 38 other models qualify for the lower £1,500 offer.

For the third time this year, BEVs made up more than a quarter of registrations in the UK during October. However, the 25.4% share is still below the ZEV mandate target of 28% for 2025. This will rise to 33% in 2026.

But any change in taxation around BEVs, either with the removal of ECOS or the introduction of per-mile charging, could influence buyer decisions around the technology. Once seen as an affordable way of motoring, these changes could push some models out of reach for many drivers.

Have BEVs benefited from incentives?

Registrations of BEVs increased by 23.6% in October, with 36,830 new units taking to UK roads. This was the second full month of the ECG. It was announced in July, and the first models were revealed in early August.

The volume growth, while encouraging, is the fourth-lowest total of 2025 so far. The share of 25.4%, up 4.7 percentage points (pp), is encouraging. However, it may have more to do with the collapse in the petrol market. While the fuel still dominates figures, it has seen volumes plunge each month.

BEV market growth is also being outpaced by PHEVs. Damaging the benefits of all-electric ownership could tip the balance for a powertrain which is already walking a tightrope.

In the first 10 months of 2025, BEV registrations improved by 28.9%. In total, 386,244 all-electric models left showrooms, an increase of 86,511 units. However, this was down from a peak of 34.6% in June. The year-to-date improvement has slipped steadily downwards since the ECG was announced.

Across this period, BEVs took a 22.4% market share. This is up from 18.1% at the same point last year, but the 4.3pp difference is lower than the 5pp increase recorded in June.

PHEVs’ impressive growth

While the BEV market performs well, its pace of growth is being outpaced by PHEVs. In October, registrations for the powertrain increased by 27.2% year on year, as 17,601 new cars were delivered. However, this only equates to a difference of 3,796 units.

The result gave PHEVs a 12.1% market share in the month, up 2.5pp compared to October 2024. Once again, the technology ended the period close to HEVs in terms of volume and share.

Between January and October, PHEV deliveries increased by 37.1%, with 190,240 registrations. The powertrain gained 2.6pp on its 2024 market share, ending the period accounting for 11% of all registrations.

Combining BEV and PHEV figures, the electric vehicle (EV) market saw volumes improve by 24.7% in October with 54,431 registrations. This allowed for a 7.4pp jump in market share to 37.6%.

Across the first 10 months of the year, EVs were up by 31.5% with 576,484 deliveries. Having taken a third of the market for the first time in September, the technology maintained this trend with a 33.5% share, up 7.1pp.

Electrified models lead UK figures again

The UK counts hybrid registrations differently from other major European markets. Rather than merging mild hybrids with HEVs, it splits them into their respective petrol and diesel categories.

With this in mind, HEV deliveries grew by 2.1% in October, with 19,250 units delivered to customers. This equated to a rise of just 388 cars, compared to the same period last year. The small volume improvement meant the HEV market share remained stable at 13.3%, representing a 0.2pp rise year on year.

From January to October, HEVs saw 8% growth, with 241,919 units taking to the country’s roads. This represented a 14% market share, up 0.5pp compared to the same period in 2024.

Combining HEVs with EVs reveals that for the second time, electrified models led the monthly registration figures over ICE. In total, 73,681 models were delivered, a 17.9% rise, equating to 11,185 more units. This gave the technology a 50.8% market share, up 7.5pp.

However, this slim lead was not enough to change the status quo in the year-to-date figures. With 818,403 registrations, electrified volumes were up 23.5%. They held a 47.5% market share, up from 39.9% at the same point in 2024.

With two reporting periods of 2025 left, a large effort is needed for electrified models to lead the market. Between September and October, the year-to-date share only increased by 0.3pp. However, it does suggest that 2026 could be the first year to see ICE succumb to the electrified sector.

ICE holding on in year to date

The petrol market has been in freefall for some time. Despite a rare instance of growth in September, normal service resumed in October, with an 11.6% decline in volumes. In total, 64,360 petrol cars were delivered, down by 8,471 units. The powertrain still led the overall UK market with a 44.4% share, but this was down by 6.1pp year on year.

This performance added to the year-to-date drop the fuel type is experiencing. Between January and October, petrol deliveries were down 8.5% with 814,154 registrations. The market share of 47.2% is still dominant, but down by 6.4pp.

Diesel’s decline also continued in October. With 6,907 units, volumes were down 22.9% year on year. The 4.8% hold of total registrations was the second-lowest of 2025, and 1.4pp down on last year.

Over the first 10 months of 2025, diesel has seen its volumes decrease by 15.1%, with 90,563 units delivered. This left it with a 5.3% market share, down 1.1pp.

Combining the two powertrains, the ICE market fell 12.9% in October as just 71,267 units made it to UK roads. This was a drop of 10,525 units, leaving electrified models to help the new-car market to its slight growth. The performance left the sector with a 49.2% market share.

However, ICE still led across the first 10 months of 2025. With 904,717 registrations, volumes were down 9.2%. But the technology still held 52.5% of the total market, suggesting it will end the year as the leading powertrain group.