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Tax changes brings bigger focus on low co2 vehicles

Chancellor George Osborne’s latest budget will bring some significant changes to the way the motor trade, and indeed car buyers, focus on low emission vehicles. In 2017, Vehicle Excise Duty (VED) will be scrapped, and replaced with an entirely new set of bandings for road tax. The existing bandings currently provide a sliding scale of taxation based on carbon dioxide emissions, with many lower emission cars being free to tax. The new guidelines will place vehicles into just 3 bands – Zero Emission, Standard and Premium.

budgetUnder the new proposals, existing low emission cars will no longer be cheaper to tax, except in year one where cars will be placed into 13 bands. After the first 12 months of a car’s life, there will be a flat rate of £140 for all vehicles which emit more than 0g/km – effectively everything bar electric vehicles. In addition, owners of new and used cars which cost more than £40,000 will be faced with an additional premium of £310, making their total road tax outlay some £450 in almost all cases.

Unsurprisingly, the news has not gone down too well with many motorists. Those who have recently changed vehicles to lower emission models partly on account of the cheaper VED will see that benefit removed, while manufacturers may see falling sales of these cars, as the incentives for buyers are lowered. Moreover, the industry has angrily reacted to the larger penalty on more expensive cars, particularly with many of the premium manufacturers at the forefront of the development of lower emission cars – indeed some of the newer, world-leading zero emissions vehicles will fall into the Premium band, which potentially dilutes their impact and may mean that few see the roads beyond use with trade plates.

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Vehicles which benefit from new technologies, such as plug-in hybrids, are becoming more popular, but the increase in taxation levels may stop or slow this growth. There is little to no incentive for the motorist to invest in a low emission vehicle when they are effectively penalised at the same rate as those choosing to opt for higher emitting vehicles. Of course higher taxation levels can be justified given the UK’s need to fill the deficit created by reduced VED levies, but taxing a majority of vehicles in an identical manner does not appear to send the right message to motorists or car manufacturers. The UK also has various manufacturers with a long and proud tradition of creating luxury motor vehicles, and the additional premium on expensive cars also sends a potentially damaging message to those companies.

The Chancellor has promised that the increased monies raised will be ring-fenced for motorway and major road improvements, news which will come as some boost to beleaguered motorists. It has been almost 80 years since road tax levies were exclusively set aside for such a purpose, and this will certainly improve our long-suffering road networks in the medium to long term. However, the negative impact on the benefits of buying low emission vehicles will undoubtedly offset most of the goodwill that any road improvements will produce, and, alongside the increasingly expensive insurance policy, will provide yet another expense for almost all the UK’s motorists.