Rachel Reeves tipped to intervene in UK car market with new subsidies to boost electric vehicle purchases

It also follows Chancellor Rachel Reeves taking action to back the UK car finance sector which is currently under a £44billion strain after a Supreme Court ruling threatened to derail the industry. The court ruled in favour of drivers who unknowingly overpaid on car loan interests through Discretionary Commission Arrangements.

Now Reeves is looking at offering financial help for drivers to incentivise more UK drivers into purchasing an EV all while supporting the Government's net zero plan.

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According to the Financial Times, the Government is currently in "private discussions" with various members of the auto finance sector to ramp up low-interest or interest-free loans to help make EVs more attractive.

One option being considered is underwriting private sector loans which wouldreduce the monthly repayments for drivers while also bringing down the initial costs for EV purchasing.

The move has already been met with support from the car industry which has been struggling to meet the UK’s ambitious electric car targets without risking penalties. Under the plans, car makers would need to have at least 28 per cent of new car sales be electric by this year or risk hefty fines of up to £15,000 per non-compliant car.

The Zero Emission Vehicle mandate will require all vehicles to be zero emission by 2035, with Labour currently holding a consultation to potentially amend the terms of the mandate.

The subsidies by the Government would help push the remaining 80 per cent of new cars in the UK, which use finance or lease deals,over the line to purchase an EV, experts have suggested.

The journey to net zero has not been easy with many car makers struggling along the way. Last year, Stellantis announced it would shut its van-making factory in Luton with 1,100 jobs impacted.

The company blamed the ZEV mandate for adding too much pressure on the industry to increase production of electric cars without a strong enough consumer appetite.

A Government spokesperson said at the time: "While it’s encouraging to see Stellantis investing in the future of its Ellesmere Port plant, we know this will be a concerning time for the families of employees at Luton who may be affected."

The spokesperson added that the UK has a "longstanding" partnership with Stellantis and will continue to work closely with them alongside trade unions and local partners "on the next steps of their proposals".

Last year, former Transport Secretary Louise Haigh said the Department for Transport would consider "new flexibilities" to help carmakers achieve their goals.

The announcement came off the back of crucial meetings with senior Government ministers and automotive manufacturers, including Nissan, who warned that the UK car industry has "reached a crisis point".

Adrian Dally, motor finance director at the Finance and Leasing Association, said: "If there was a way where the Government could underwrite cheaper loans... that would be extremely helpful." He noted that the impact of the scheme and strain on public finances would depend on "how the UK decides to structure any support".

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A Department for Transport spokesperson added that 2024 was a "record year for switching to electric" with 382,000 EVs sold and the UK "investing over £2.3billion to support industry and consumers make the switch".

Later today, Reeves is set to make an announcement on UK growth with talks she could introduce Government support for EVs.