24 December 2025: Reeves’ car taxes could ‘derail’ switch to EVs

It is tough to understand why Rachel Reeves decided to “punish” farmers in her budget last year by changing the inheritance thresholds, which meant that a large part of an essential sector of the economy was likely to feel singled out.

Farmers have now seen a glimmer of light as the Prime Minister announced yesterday that the starting point for inheritance tax for family-owned farms would be more than doubled from one million pounds to two and a half million.

Farmers across the country are celebrating after Sir Keir Starmer caved in following months of pressure from farmers and watered down plans to tax inherited farmland.

Under the plans, announced by Chancellor Rachel Reeves last year, farmers were to be charged 20 percent on agricultural assets above £1m from April 2026. This triggered a storm of fury, with fears that family-run farms would be worst affected.

But on Tuesday, Labour said it was raising the threshold from £1m to £2.5m, meaning that most farms would not have to pay it.

The climbdown comes after crunch talks between the National Farmers’ Union President, Tom Bradshaw, and the Prime Minister last week. Gareth Wyn Jones, a farmer from North Wales who was one of the leaders of the protests against the tax, told reporters the announcement was “great news”. At the same time, Jeremy Clarkson, who has also been very critical of the policy, welcomed the climbdown.

It is as yet unclear what this will mean for the Exchequer.

Reeves announced she will deliver her Spring Statement on 3 March, providing an update on the UK’s economy and public finances. She has instructed the Office for Budget Responsibility (OBR) to prepare an economic and fiscal forecast to accompany the statement on the same day. However, the Treasury has confirmed there will be no formal assessment of the UK government’s performance against its fiscal mandate, adhering to its commitment to hold only one major fiscal event annually during the autumn.

Despite the government’s intention to keep the event low-key, analysts predict the statement will evolve beyond a simple progress report. Historical precedent suggests spring statements often include significant measures, such as welfare adjustments, crackdowns on tax avoidance, or extra funding for defence and construction.

Reeves has come under fire over plans which leave electric car drivers hit by new taxes, with experts warning the move risks putting people off switching to cleaner vehicles.

The Chancellor is pressing ahead with a pay-per-mile tax on electric vehicles, due to come into force in April 2028, which would charge drivers based on how far they travel rather than how much fuel they use.

The proposal, known as the new electric Vehicle Excise Duty (eVED), is designed to replace revenue lost from falling fuel duty as more drivers move away from petrol and diesel cars. Treasury forecasts suggest the scheme will raise £1.4 billion a year by 2029–30.

Tax specialists have now warned the policy could backfire, discouraging motorists from buying electric cars at the very moment the Government wants the uptake to increase as part of the Zero Emission Vehicle mandate.

The pound climbed to its highest level since the end of September, as thin markets and doubts about another rate cut early in the new year encouraged buyers. It reached a high of 1.3518 and closed at 1.3499.

Yesterday, President Trump laid out what he called a new “rule” for his next Federal Reserve chairman, arguing that interest rates should be lowered when markets are performing well and criticising the Central Bank for raising rates on fears of inflation despite strong economic growth.

It is unclear what the term “performing well” means in real terms, while “markets” is a widely used term for several parts of the economy.

The president's post on Truth Social comes after yesterday’s report that the economy grew at a faster pace than analysts had expected in the third quarter, according to new data from the Commerce Department. The administration has celebrated the report as validation of President Trump's economic agenda.

It is not even clear whether the President can make such a demand on Jerome Powell’s replacement. He ran into similar difficulties when he demanded a much more significant say in monetary policy, claiming that it is central to everything he is trying to do to “make America great again.”

Trump wrote, "In the old days, when there was good news, the Market went up. Nowadays, when there is good news, the Market goes down, because everybody thinks that Interest Rates will be immediately lifted to take care of 'potential' Inflation."

It is possibly only a matter of time before the President rewrites the Fed’s mandate to include such a rule. He is no fan of the current dual mandate, which covers both employment and consumer prices.

It has been an awkward year for Jerome Powell in many ways. The President has become a “monkey on his back, and several of his supporters have jumped on a bandwagon they have no right to comment on.

The past year at the Federal Reserve saw the two sides of its congressionally mandated goals for maximum employment and stable prices come into conflict, a situation not seen since the 1970s, when stagflation took hold.

That dynamic caused divisions within the Fed, not seen in years, as evidenced by dissents from opposing directions on interest rate policy.

Powell has been cautious to make dramatic changes to the rate, as the economy shifted in the early days of Trump's second term, in part due to uncertainty over the president's tariff policy. The President has been keen to show his economic plans are working, after heavily criticising his predecessor, President Joe Biden. Trump’s overarching goal is to have the Administration and Central Bank working in harmony. That could become a recurring theme in 2026.

With the markets closed tomorrow and Friday for the Holidays, today is unlikely to bring a significant shift in the market’s mood. Yesterday, the dollar index fell to a low of 97.85 and closed at 97.90, as uncertainty over the new Fed Chairman continued to drive a dovish mood.

The European Central Bank kept its policy rates steady last week and took a more positive view of the Eurozone economy, which has shown resilience to global trade shocks.

It was the fourth straight meeting in which the ECB left rates on hold after cutting its benchmark deposit rate to 2% in June.

Inflation in the Eurozone held at 2.1%in November, according to EU statistics. The ECB expects inflation to average 2.1% this year and stabilise around its 2% target in the medium term. Staff projections foresee inflation averaging 1.9% in 2026, 1.8% in 2027, and returning to 2% in 2028.

Prices surged sharply beginning in late 2021, peaking at a record 10.6% in October 2022. The ECB responded with one of its most aggressive tightening cycles, raising rates by 450 basis points between July 2022 and late 2023, before easing policy in 2024.

ECB President Christine Lagarde said the Bank “reconfirmed that we are in a good place,” pointing to steady inflation and signs of economic resilience.

The Eurozone economy grew 0.3% in the third quarter, supported by stronger consumption and investment. Exports also rose as European firms weathered U.S. tariff pressures better than expected. Unemployment remained near a historic low of 6.4% in October, and industrial production increased 0.8% that month.

Unemployment is a constant bone of contention for the ECB, since several members of the region often provide data late, while statisticians at the Central Bank consider the data frequently unreliable. Nonetheless, the ECB’s Governing Council is not minded to question the numbers when they comply with its economic and monetary policy goals.

The ECB raised its growth forecasts to 1.4% for 2025, 1.2% for 2026 and 1.4% for 2027.

Economists expect rates to remain unchanged for an extended period. Economists believe the ECB is likely to maintain its stance through 2026, while others describe the bank’s “good place” as a neutral policy setting that would shift only if inflation or growth weakens significantly.

Lagarde said the ECB is not pre‑committing to a rate path and will continue making decisions “meeting by meeting,” adding that being in a good place “does not mean that we are static.”

The Council of the European Union, a group comprising ministers from the European Union’s member nations, has backed the ECB’s proposed digital euro. The body believes that the Central Bank Digital Currency would be key to strengthening the euro, although it is not certain how that would happen.

Additionally, the Council viewed the measure as an initiative for improving the EU’s strategic autonomy, economic security, and resilience. However, its members pushed for holding limits on the digital currency.

It is recommended that the ECB craft rules on caps to allow for online digital accounts and digital wallets. Meanwhile, it reserved the authority to review and recommend the overall ceiling for the digital euro holdings every two years.

The Euro, while well-supported due to the likelihood that rates will remain unchanged for the foreseeable future, will likely begin the New Year on “solid ground.” However, its inability to break the 1.18 barrier in such unusual conditions will concern traders moving forward, and may contribute to its first move in January, or perhaps before, being a mild correction.

Have a great day!