Plans to offer cheap or interest free loans on electric vehicles (EV) to drive up flagging sales are being considered by the government
The scheme would see the State underwrite private sector loans, making monthly repayments more affordable and narrowing the price gap between EVs and petrol or diesel cars.
Government officials have been holding private talks with the car finance sector to explore ways to introduce low-interest or interest-free loans to boost demand, sources have revealed.
The proposal would effectively be an admission that the last Conservative government’s decision to scrap EV grants in 2022 was a mistake, with sales struggling despite ambitious targets.
The government’s “zero-emission vehicle mandate” requires manufacturers to ensure a growing percentage of their sales are electric, with the target set to jump from 28 percent this year to a staggering 80% by 2030. Carmakers failing to meet the targets face punishing £15,000 fines per missing vehicle.
Yet, despite this, EVs accounted for just 19.6 percent of new car sales in the UK last year—far below the 22 percent required under the scheme.
Companies such as Volkswagen, Ford, and Renault are now scrambling to avoid hefty penalties, with Stellantis even citing the mandate as a factor in closing its Luton van factory, putting 1,100 British jobs at risk.
The crisis is further compounded by the plummeting value of second-hand EVs, which has made finance repayments on electric models higher than on traditional petrol cars.
With ministers unlikely to reintroduce direct cash incentives due to the cost to the Treasury, the focus has now turned to subsidising car loans instead.
Industry leaders say that while zero-interest loans won’t completely level the playing field between EVs and petrol cars, reducing finance costs could provide a much-needed boost to sales.
Adrian Dally, of the Finance & Leasing Association, said: “If the government could underwrite cheaper loans, that would be extremely helpful.”
A Department for Transport spokesperson declined to comment directly on the proposals but insisted that 2024 had been a “record year for switching to electric,” with 382,000 EVs sold and nearly 20,000 public chargers added.
The government says it is investing £2.3bn to support consumers and the industry, but with carmakers facing growing pressure, many are asking whether ministers will have to go even further to rescue Britain’s EV market.
