Tariffs on electric cars from next year will be avoided after the UK and the EU agreed to extend trade rules, Rishi Sunak has announced.
The Prime Minister said the UK and the EU have decided existing regulations will continue until the end of 2026.
Rules of origin requirements were due to come into force from January 1 following post-Brexit negotiations.
They would have seen tariffs of 10% imposed on car sales between the UK and the EU if at least 45% of the vehicle’s value did not originate in the UK or EU.
Manufacturers of electric cars were expected to struggle to meet that threshold as battery production in Europe has not increased as quickly as hoped.
The Society of Motor Manufacturers and Traders estimated tariffs could result in an average price rise of £3,400 on EU-manufactured pure battery electric vehicles bought in the UK.
The automotive industry had pleaded with the Government to secure an agreement with the EU to delay the changes.
Mr Sunak said: “We have been listening to concerns of the sector throughout this process and I know this breakthrough will come as a huge relief to the industry.
“The UK Government is delivering a pragmatic solution to keep costs down for businesses and for people at home who want to make the switch to electric vehicles.
“We are also leaving no stone unturned to bolster our domestic battery industry and deliver long-term certainty for our thriving automotive sector to help them grow their roots in the UK.”
Business and Trade Secretary Kemi Badenoch said: “This Government is determined to ensure the UK remains one of the best places in the world for automotive manufacturing.
“We listened to the concerns of the sector and worked hard with counterparts in Brussels and across Europe to deliver a solution that works for both sides.
“Resolving issues like this one is part and parcel of being an independent trading nation.
“This very good result is a visible demonstration that the UK is delivering for business with trading partners around the world.”
The announcement was welcomed by the automotive industry.
SMMT chief executive Mike Hawes said: “Deferring the rules of origin is a win for motorists, the economy and the environment.
“Maintaining tariff-free trade in EVs will ensure consumers retain the widest and most affordable choice of models, at a time when we need all drivers to make the switch.
“Governments have listened to the sector and acted to safeguard the competitiveness of the EU and UK automotive industries and give the Anglo-European battery industry the critical time it needs to catch up.”
Lisa Brankin, who chairs Ford Britain, said: “Today’s decision to avoid unnecessary tariff costs is a major moment that will protect jobs, support countless investments, and most importantly help to keep costs down for consumers and businesses on their journey to an all-electric future.”
Maria-Grazia Davino, group managing director of Stellantis UK, said: “We can now focus on our planned acceleration towards electrification, keeping costs down for our customers.
“The agreement demonstrates the importance of the trading relationship between the EU and UK and keeping the UK competitive.”
The Government also said it hopes to reach an equivalent agreement with Turkey by the end of the year.