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Road tax to be overhauled

The summer 2015 budget, revealed by Chancellor George Osborne on 8 July, contains several new policies likely to affect both the motor trade and drivers of new and used cars.

The new budget was announced soon after the general election in May, and is also referred to as the emergency budget, since it was designed following the Conservative victory to re-evaluate the March budget laid down by the coalition government.

tax-discProbably the biggest change to affect motorists involves the payment of road tax, more formally called Vehicle Excise Duty (VED). Currently, VED is charged according to a vehicle’s carbon emissions. Cars registered before March 1 2001 are rated by engine capacity instead.

The number of new cars falling into the lowest emissions band, meaning no VED is paid, is on the rise. Technology is improving, there is more demand for environmentally friendly cars, and car manufacturers are concentrating more on this technology. With VED ranging from zero to more than a thousand pounds a year, no or low VED can be a big selling point. Low emission cars are often smaller and lower powered, meaning a cheaper insurance policy too.

Consequently, if the current trend continues and rates remain unchanged, by 2017 three quarters of the new cars appearing in the showrooms on trade plates will qualify for zero road tax. This is a significant loss of revenue which presents a challenge for the government. According to Osborne, it is unfair that motorists who can afford a new car should avoid paying VED, while owners of older cars are penalised.

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Under the new system, owners of cars registered after April 1 2017 will pay tax based on emissions during the car’s first year, then a flat annual rate of £140. The exception is cars which cost £40,000 or more new, which will be charged a higher rate for their first five years.

A few other elements of the summer budget will also affect motorists and traders. Although the policy has not yet been finalised, the government has announced further discussions around the MOT. It has been proposed that cars and motorcycles should have their first MOT at four years from registration, rather than the current three. Subsequently, as there is now, there will be an annual inspection and certification.

Fuel duty, which has been frozen since 2011, remains unchanged, although in the March budget it was announced that the rate would rise in September. Prices paid at the pump will continue to fluctuate, however, based on market forces and availability.

Finally, some good news for all motorists, regardless of the age, engine size, or emissions of their vehicle. Some of the money raised through the VED in England will go towards a new Roads Fund dedicated to the upkeep and maintenance of roads, so everyone can enjoy safer driving.