Restructure the Market
My 2p...
1. Introduce a fossil fuel car VAT supplement, starting at 2%, ratcheting up by an additional 2 percentage points every year until it hits 20% - ie gradually double the VAT on any vehicle that is in any way powered by petrol or diesel.
2. Introduce an electric/AF car VAT discount, starting at 20%, ratcheting down by 2 percentage points every year until it's gone - ie remove the VAT for now, gradually reintroducing it. You could cap this at (say) £6k maximum if thought necessary.
3. Drop the existing EV grant.
4. Rework VED so that all vehicles are on the same scheme (there are currently 3 or 4 different ones running in parallel), such that:
a) all vehicles pay, b) those that pollute more pay more, and c) those that impose extra wear and tear on the network or consume extra capacity [think heavy and/or XL vehicles] pay even more. For example, a base VED of £50, plus a fossil fuel component tied to emissions [one element for each of CO2 and NOx, plus room to add others if we find further pollutants], plus a % "XL" levy (say, 50% extra for over 2 tonnes or L>4.5m or W>2m or H>1.5m, and 25% discount for "compact" cars [<1T or small enough to fit 2 in a standard parking space]). It's probably appropriate to implement this new VED with lower starting rates that are ratchetted up by fixed increments for a few years before switching to inflationary rises, to avoid huge overnight hikes for those currently enjoying negligible rate VED on older petrol/diesel vehicles.