Driving the transition: leasing foundation of UK’s zero-emission mobility

by Toby Poston, CEO, British Vehicle Rental & Leasing Association (BVRLA)

In the UK’s journey towards net zero transport, leasing is quietly doing much of the heavy lifting. By offering access,  flexibility, and risk mitigation, the leasing model is central to road transport decarbonisation, with businesses and  consumers valuing the cost and sustainability benefits it can offer. More households and businesses are choosing to  lease their vehicles, gaining the ability to adopt newer, greener models without shouldering all of the upfront cost or  long-term residual uncertainty.

Momentum in the UK leasing market is being driven by cars, which are propelling the BVRLA lease fleet towards the  two-million-vehicle milestone. The fleet share for cars has climbed from 72% in Q2 2024 to 76% a year later, as the  volume of light commercial vehicles (LCVs) contracts due to economic pressures hitting SMEs in particular. Behind this shift lies intense competition among car manufacturers, including a wave of new electric entrants, all vying for  market share in a rapidly changing landscape. Alongside some targeted support from government, generous  manufacturer discounts and tactical pricing have stimulated demand, helping fleets and drivers transition to newer,  cleaner vehicles.

Such actions have also created new risks. Many of the most aggressive deals are tied to ‘commit-to-purchase’ arrangements, leaving leasing companies exposed to residual value volatility in a market where prices can change as  fast as the technology itself.

Salary sacrifice gains ground in UK leasing mix

In the UK, salary sacrifice car schemes sit between a business and consumer product. Employees lease a car through  their employer, paying via a reduction in gross salary. This structure delivers tax and National Insurance savings for  both parties, making it an affordable route into new and often electric vehicles. It’s a key reason why this hybrid  model has become one of the fastest-growing funding types in the BVRLA’s leasing fleet. Fair taxation via Benefit-in- Kind (BiK) rates for zero-emission cars has fuelled this growth. Salary sacrifice is a powerful lever for enabling EV access to a host of new employees and firms. Employees have an ever-expanding choice of lower priced cars, while  their employer benefits from a highly valued recruitment and retention tool.

Business Contract Hire (BCH) still accounts for the largest slice of the leasing fleet and continues to grow. It is up  7.8% year-on-year, its best growth rate for at least a decade. As with salary sacrifice, its dominance is reinforced by  favourable tax treatment for zero-emission company cars, delivering a financial benefit alongside helping firms meet their own sustainability targets.

Why incentive structure is essential

BVRLA members are driving the UK’s decarbonisation efforts. Almost half (46%) of the leasing car fleet is now  battery electric, among certain customer segments the percentage is much higher. The hardest-to-transition segment
is that of private motorists, for whom financial incentives to drive electric are limited. Where support exists, adoption accelerates.

The BEV growth in leasing is not happening organically in a vacuum. It is underpinned by targeted incentives that  make the numbers work, aligning environmental ambition with commercial viability.

BiK tax regime for ZEVs

Fair Benefit-in-Kind tax rates for zero-emission vehicles has been a critical enabler of the EV uptake to date. With BiK rates for EVs locked in at comparatively low levels through to 2029-30, fleet operators and employees can better  forecast costs, improving confidence in lease decisions. This is proving to be a strong incentive that is making the leasing of electric vehicles more affordable to more motorists.

ZEV Mandate and OEM pressure

The UK’s Zero Emission Vehicle (ZEV) Mandate has been in place since January 2024. It sets quotas for manufacturers to deliver increasing shares of zero-emission vehicles and is having a material impact on supply chain  dynamics. For OEMs with mixed portfolios, the need to balance supply of ICE vehicles with those with electric  powertrains in influencing what vehicles are being made available throughout the year, and what level of discounting  they are happy to offer. This can present to the leasing channel and fleets as more affordable new vehicles. It can also  result in orders being required for less desirable vehicles in order to secure the first-choice stock, particularly in the  van sector when diesel remains the overwhelming preference for many operators.

Leasing is doing a lot of the heavy lifting as we journey towards net zero. More households and  businesses are choosing to lease their vehicles, gaining the ability to adopt newer, greener models without shouldering all of the upfront cost or long-term residual uncertainty.

Support stops at ‘New’

The launch of the Electric Car Grant in Summer 2025 seeks to further support the supply of new electric cars. Its  structure means only certain vehicles apply, and only those below a certain price to keep the incentive focussed on smaller, more affordable models.

Such political and fiscal levers are helping some use cases bridge the gap between green ambitions and financially  driven business cases.  Targeted incentives have been shown to create a positive behaviour change, with new  registrations of electric cars continuing to rise. While needed to get the transition into a strong position, the  incentives are disproportionately concentrated at the front end of the lifecycle. This is creating distortions and leaving the used EV transition under supported. A growing number of EVs are hitting the used market at pace, with attention needed to bring demand up to absorb that supply.

With multiple measures in place to drive adoption of new electric vehicles, that imbalance between supply and  demand is set to inflate in an unsustainable way without measures to bring equilibrium. The leasing sector has  funded deeper-than-expected depreciation on EVs to date. This is causing many to adjust their forecasts and risk  profiles, pushing rates on new agreements up.

The quiet rise of used leasing

Another response to this residual value volatility, and after a year or two of moderate growth from a very low base, we  have now seen a dramatic 166% year-on-year uplift across the fleet for used car leasing.

Leasing companies are warming to the re-lease of used EVs as a potential solution to the depreciation they have  suffered. It gives them another option to manage their fleet and their finances once the initial agreement has  concluded. Used volumes are still low compared to new vehicle contracts, but supply is increasing and finding a  customer base. The role of used leasing in the wider transition to electric vehicles can’t be understated. It opens up  EVs to more drivers and use cases, offering the stability and reduced risk that a lease can provide, but at a reduced  monthly cost.

A genuinely sustainable EV transition cannot rest solely on new vehicle adoption. At scale, the used car market must  function robustly, enabling more consumers and smaller fleets to access EVs at lower cost and with greater flexibility. Without it, growth in the ‘tail’ of mobility – smaller fleets, personal use, private leasing – will stall.

The used EV market faces fierce headwinds: residual value volatility, uncertain battery depreciation, limited  consumer confidence, and mismatches in supply-demand timing. In commercial contexts, these challenges are  magnified and causing business appetite to wane.

The uphill climb for van electrification

For vans, economic pressures and unsuitable products are stopping the sector in its tracks. Year-on-year, the BVRLA  LCV fleet shrunk by -6.7% in Q2 2025 as customers extended rather than renewed contracts. Inflation in the price of  new vehicles, OEM pressure to include electric LCVs in large orders, and a lack of confidence in the UK economy  have seen van customers run their current vehicles for longer. Delaying replacement cycles cannot continue  indefinitely, with older LCVs starting to require costlier maintenance and experience more downtime, but leasing executives are concerned about how some customers will afford new vans.

While car electrification makes visible progress, vans present a more complex and uneven picture.

Many businesses remain unconvinced of electric van suitability. Concerns over range, payload loss due to battery  weight, charging infrastructure (particularly for depots and rural routes), and residual value uncertainty remain  active, high barriers.

Van electrification is a slow burn. It demands sectoral adaptation, infrastructure scaling, and risk mitigation  strategies beyond what’s needed for cars. None of those requirements are easy.

Van electrification is a slow burn with many businesses unconvinced of suitability, due to
concerns over battery weight, charging infrastructure and residual value.

The macro and regulatory pressures shaping leasing

The generational transformation of transport is unfolding against a backdrop of acute economic and regulatory  turbulence.

Economic headwinds and affordability

Households are under pressure, with rising inflation, cost-of-living stress, and higher interest rates constraining willingness to commit to new leases. For businesses, tighter margins and greater scrutiny of capital deployment mean every contract must justify deeper value. We are seeing a rise in contract extensions and more flexible re-contracting  to manage affordability pressures.

In the van space especially, rising National Insurance contributions and squeezed budgets make new electric van procurement more difficult, further compounding the sector’s inertia.

Regulatory uncertainty

Throughout 2025 the leasing and vehicle industry has faced a continually shifting regulatory environment: evolving  ZEV Mandate rules, changes to grant frameworks, shifting fiscal signals, and periodic reinterpretations of tax policy.  The lack of long-dated clarity creates friction and caution in planning. But signals suggest that 2026 should see more  stable goalposts. Such stability will be critical for anchoring investment and confidence in both new and used electric  leasing strategies.

Conclusion

Leasing is more than just an enabler; it is a strategic linchpin on the UK’s road to cleaner, greener mobility. Decarbonisation is a once-in-a-generation challenge and many foundations have been laid. The transition now risks  becoming lopsided, at which point those foundations will start to creak. If incentives and market design continue to  favour new EVs at the expense of a stable used EV ecosystem, large swathes of the market will be left behind.

Whether looking at decarbonisation or the wider landscape in which the sector operates, consistency and clarity are  critical. The ability to predict effectively underpins all activities and planning, be them operational or financial.  Volatile markets and unpredictable policies ramp up risk, which remains a cornerstone of every decision made in the  boardrooms of leasing companies nationwide.

The numbers are telling and the trajectory continues to be an upward one. In the face of regulatory change, economic  turbulence and an entire industry modernising at an accelerated pace, the UK’s leasing sector is in a strong position. Leasing is showing its ability to meet the changing needs of consumers and company fleets alike. Good customer  outcomes are being put first, while new products and services come to market to adapt to new habits, desires and  requirements.

Next year will undoubtedly bring with it some new challenges, but all the signs suggest that the sector will again come out on top.

Sources:
BVRLA Leasing Outlook report
BVRLA #happyEVafter
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