motoring guide

The new car tax regime

Alistair Darling's budget last month unveiled nothing short of a new car tax regime for motorists, with higher charges to be levied for the most polluting vehicles in a bid to tackle pollution. So just how far will the new rules affect the UK's 40 million drivers? Under the proposals, categories for vehicle excise duties (VEDs) have been revised so vehicles in Band A – which emit up to 100kg/km of carbon dioxide - will pay no fees while those in Band G – which emit more than 255g/km - will pay £400 in 2009.

In addition to the highest road tax rates, in 2010 a so-called "showroom tax" will be levied on the highest polluting vehicles during their first year of ownership. Cars that emit more than 255 kg/km of carbon dioxide, such as the Range Rover Sport and Ferraris will be subject to the highest charges of up to £950.

However, motorists buying brand new cars in 2010 that emit less than 165g of CO2 per km will get the first year's car tax free of charge.  

Further to increased charges on new vehicles, Mr Darling also introduced unpopular increases in vehicle duty on older cars based on their emissions. This means that drivers of some family cars and people carriers such as the Ford Galaxy and Renault Espace could see their car tax rise to £455 per year by 2010. The new rates will affect almost all cars built between 2001 - 2006.

• Use the official car tax calculator to see how you are affected
• Visit the Directgov site for full details of the new car tax bands

In support of his changes Mr Darling said: "It is right that if people choose to buy a more polluting car that they should pay more in the first year to reflect environmental cost. The changes will provide a real incentive to manufacturers and motorists."

But the measures were refuted by the Conservative party, as the shadow vice-chancellor George Osborne remarked: "Labour came into office promising to help Mondeo man. Now Gordon Brown is hitting Mondeo man and millions of families with new taxes. Labour's economic incompetence means a rising cost of living for the very people they said they would help.

"This is a bad news Budget which kicks Britain's families when they're down. The cost of living is already rising fast and the government has added to it with stealth taxes on cars and alcohol, when we believe that these kinds of taxes should be offset with tax reductions elsewhere."

Although the new car tax rules may appear to restrict motorists hoping to purchase larger vehicles, according to Guardian Money it is still possible to buy a family car or even a 4x4 and escape high charges if a smaller diesel engine is chosen over a petrol one.

Motorists hoping to buy a used car will need to assess carefully how much tax they will be paying on a chosen model in the future.

The news provider claims that the Chancellor dramatically reduced the value of used cars in the higher VED categories.

For example, large petrol-run, automatic MPVs, such as the Volkswagen Sharan, will be unattractive to buyers due to high taxes from 2009. Recent figures verify the appeal of diesel cars among motorists.

The Times reports that statistics published by the Society of Motor Manufacturers and Traders show that sales of diesel cars have increased, accounting for 40.2 per cent of the 2.4 million cars sold in Britain last year, compared with only 13.8 per cent in 1999.

Diesel accounts for a greater share total of fuel consumed by all vehicles in Britain than petrol, with drivers last year buying 25.5 billion litres of diesel and 24 billion litres of petrol.

According to the organisation, sales of diesel-powered cars will outstrip petrol-powered cars, by 2011.

Diesel may cost 5p to10p a litre more than petrol, but it proves more economical for most drivers as it powers 10 to 20 per cent more miles for the same fuel, the news provider reports.

Furthermore, figures released by Experian show that purchases of energy efficient and eco-friendly vehicles are increasing among used car buyers. According to the information services company, sales of used diesel cars rose by four per cent last year while sales of used petrol cars fell by 4.4 per cent.

Greater London saw the highest increase as sales of used diesel cars increased by nine per cent during 2007, followed by five per cent in the south-east.

Used electric and hybrid vehicles have also increased in popularity with sales rising by 473.5 per cent and 71.8 per cent respectively.

"There has been a lot of media attention, not only around the environment and the effect of the most polluting cars, but also on the forthcoming car tax increases and the rise in fuel duty," explained Kirk Fletcher, managing director of Experian's automotive division.

"These latter factors appear to have played a more significant role in consumer buying habits over the last few years," he added.

The worth of government measures to encourage manufacturers to produce more fuel-efficient vehicles and motorist to buy them have been disputed by some industry experts.

Nigel Wonnacott from the Society of Motor Manufacturers and Traders told the Daily Telegraph: "Does he (the chancellor) really think that manufacturers operating on five- to seven-year product lead times are going to completely change direction because of a punitive local sales tax? Not a chance."

The Telegraph also reports the extra VED might make cars in the highest category appear even more lucrative.

"There might be something in that for a small minority. Possibly from the same people who welcomed the £25 congestion charge in London. But on a serious note, this isn't a VED change; it's a sales tax that's been bought in under the cloak of environmentalism."

The chancellor's reform of VED, which will see the treasury net an extra £735 million from motorists has also been received with scepticism by the AA's Edmund King.

"The increase in vehicle excise duty for high-polluting vehicles will catch out many motorists. Drivers want cleaner, greener cars but we must ensure that the proposals are not just a green smokescreen for allowing the Treasury or local authorities to take more cash from the motorist," he said.

30 May 2008