The UK government is reportedly considering subsidising purchases of electric vehicles by guaranteeing consumer loans, as it looks at ways to boost sales that are failing to reach official targets.

Ministers have started talks with the car finance sector on how to make more low-interest or interest-free loans available to help consumers buy more EVs, according to the Financial Times.

By underwriting private loans the government could help bring the higher upfront cost of electric vehicles closer to their petrol and diesel equivalents, the FT reported, citing government and industry figures.

Such a move would undoubtedly be welcomed by the car industry, which has been warning for some time that it is facing tough market conditions. Electric cars have been particularly affected by the industry-wide sales slowdown because they require a greater initial outlay, compared with their fossil fuel-powered counterparts.

Previous subsidy schemes for electric cars came to an end in 2022, when the Conservative government pulled the plug on the final grant scheme.

The government said at the time that grants had created a mature market for ultra-low emission vehicles, and had boosted sales of fully electric cars over a decade. However, the controversial decision left the UK as the only large European country without any incentives for electric cars, which carmakers called “hugely disappointing”.

More recently, the car industry has been lobbying the government to relax its sales quotas, known as the zero-emission vehicle (ZEV) mandate, which force carmakers to sell more electric cars every year in order to reduce carbon emissions.

Carmakers sold a record number of electric cars in the UK in 2024, meaning no fines were issued for missing targets, but the industry has told ministers that green goals are unsustainable.

Manufacturers were told that 22% of UK car sales should be electric in 2024, rising to 28% in 2025. However, they will be able to avoid penalties for missing the main target if they sell more battery cars in later years, or if they cut overall emissions.

The increase in sales has made the UK one of the world leaders for the adoption of electric cars, albeit behind Norway and China. Despite this, purchases have been lower than expected in the face of a wider slowdown in the car market, while consumers have expressed their concerns about the expense of buying an electric vehicle, as well as access to public chargers.

The government is preparing to relax EV sales targets for this year, so that it can avoid imposing steep fines on manufacturers under the ZEV mandate. A consultation on changing the rules will close in mid-February.

Reports of new subsidies for EVs come days after the chancellor, Rachel Reeves, launched a rare bid to intervene in a supreme court hearing in the car finance commission scandal, which could prevent motor finance companies from having to pay out tens of billions to consumers.

A surprise court of appeal ruling last October determined that paying a “secret” commission to the car dealers who arranged car loans, without disclosing the sum and terms of that commission to borrowers, was unlawful. The judgment vastly expanded the scope of potential consumer compensation.

The letter from the Treasury to supreme court judges said “any remedy should be proportionate to the loss actually suffered by the consumer and avoid conferring a windfall”.