The Government has done a U-turn on its green motoring taxes.
Faced with big decreases after it cut vehicle excise duty for the greenest cars, it has now announced plans for new graduated taxes with only zero-emission cars escaping.
The most expensive and thirsty cars will also attract significantly higher taxes and they could be incurred by some family models.
But the biggest impact on motoring costs will be a 50% hike in the Insurance Premium Tax, which affects breakdown cover as well as legal cover and which was described as “outrageous” by one motoring body.
This increase is likely to lead to more drivers not paying any insurance and risking getting caught or to lie about details on applications to get lower premiums and save money.
There is also concern at suggestions the MoT test will be reviewed and delayed until a vehicle’s fourth anniversary, risking more dangerous vehicles remain undetected and garages will see incomes decline.
The bitter pill for motorists has been sweetened with the suggestion that the new vehicle excise duty will be “ring-fenced” for road schemes, but some have pointed out the projected £1.4B raised as a result will not meet building and repair bills for the crumbling network.
It is unclear at this stage despite requests to Welsh Government, if it will get any of this ring-fenced money for its schemes as the Chancellor only talked of schemes in England getting the new investment.
- 1 gram of CO2 will cost your car tax of £140 p.a. after the initial first year rate of £10 ie it is only 100% zero emission cars in zero band.
- First year rate for over 255 grams CO2 = £2000 (double the current showroom tax)
- Cars costing over £40k pay £310 supplement on top of the standard rate of £140 for subsequent 5 years.
The Chancellor today said Insurance Premium Tax will rise from 6% to 9.5%.
The AA reacted that this increase is an “outrageous hike could well backfire by leading to an increase in uninsured drivers.”
The IPT increase will mean an extra £17.50 on a £530 average Shoparound premium according to AA benchmark British Insurance Premium Index.
The IPT hike will also hit the costs of breakdown cover and users will have to pay millions of pounds more per year in tax.
The Government also announced that it will revise VED bands for new cars and set up a new Road Fund.
There will be a consultation on the MOT with a proposal for new cars to have their first MoT after 4 years rather than 3.
In AA Populus poll Sept 2011 (16,961 responses) 55% (23% strongly) supported the first MOT at 4 years not the current 3.
Chancellor announced a continued freeze on fuel duty this year although 10% of all tax still comes from motoring.
The AA had stated clearly that the Government should avoid tax hikes on motorists in the Budget. A week ago, 73% of a Populus poll of 25,810 AA members said they feared a post-election rise in motoring taxes. Among blue-collar workers, that worry rose to 83%.
“Three quarters of AA members were right to be worried that the Government might hike motoring taxes after the election. Whilst fuel duty has been frozen every driver will be hit with the increase in insurance premium tax. This is an outrageous hike which could well backfire by leading to an increase in uninsured drivers” says Edmund King, the AA president.
“Simply hiking Insurance Premium Tax will hit all drivers and homeowners and may well backfire on the Government.”
“We still need to see the details of the VED review but a return to Lloyd George’s principle of the Road Fund is a welcome step although the pot will have to be increased if it is to cover the millions of potholes on our roads.”
New Vehicle Excise Duty (VED) bands are to be introduced, with revenues eventually going towards a new Roads Fund.
For cars registered after 1 April 2017, VED will be transformed into three bands – zero, standard and premium.
George Osborne said the “standard” charge of £140 would cover 95% of all cars. Revenues will be paid into the Roads Fund from 2020-21.
The chancellor also said that fuel duty would remain frozen this year.
Mr Osborne said, “There will be no change to VED for existing cars – no one will pay more in tax than they do today for the car they already own.”
He added that the £140 rate was less than the average £166 that motorists pay at present.
However, the new rates will not apply in the first year after registration. There will be special first year rates linked to a car’s carbon emissions.
New Vehicle Excise Duty (VED) bands are to be introduced, with revenues eventually going towards a new Roads Fund.
For cars registered after 1 April 2017, VED will be transformed into three bands – zero, standard and premium.
George Osborne said the “standard” charge of £140 would cover 95% of all cars. Revenues will be paid into the Roads Fund from 2020-21.
The chancellor also said that fuel duty would remain frozen this year.
Mr Osborne said, “There will be no change to VED for existing cars – no one will pay more in tax than they do today for the car they already own.”
He added that the £140 rate was less than the average £166 that motorists pay at present.
However, the new rates will not apply in the first year after registration. There will be special first year rates linked to a car’s carbon emissions.
- No rise in fuel duty with rates continuing to be frozen
- Major reform to vehicle excise duties to pay for a new road-building and maintenance fund in England
- New VED bands for new cars to be introduced from 2017, pegged to emissions – 95% of car owners will pay £140 a year
Steve Gooding, director of the RAC Foundation, said, “Costs for many drivers will rise, but two things help offset the financial pain.
“One is that new car prices have dropped in real terms over many years and the other is that money raised from VED will be ring-fenced for road investment, something not seen since the 1930s.”
RAC chief engineer David Bizley said the budget announcement on Vehicle Excise Duty marked a return to the days when road tax was collected and used to fund improvements in the road network.
“As new cars become more efficient, VED was always destined to bring in less and less money for the Treasury. For the first time, motorists will be able to see for themselves how the money they pay benefits the road network that they use – although it is a pity that we will have to wait five years for the Roads Fund to take effect.
“The devil, of course, will be in the detail but this new transparency has to be a good thing; indeed the RAC has previously called for ring-fencing of funds in this way.
“The changes to VED will guarantee a minimum level of spending on the roads and this, combined with the Road investment Strategy, suggest that that the critical role that road transport plays both in our economy and in motorists’ everyday lives has finally been given the attention it deserves.
“A big question mark remains however over how the new changes will affect people’s inclination to buy low carbon dioxide emitting, fuel efficient vehicles. For the first year of ownership of a new vehicle, incentives will still exist to select low emitting vehicles but thereafter, a flat rate will apply to most vehicles. We hope the new regime doesn’t undermine the major progress that we are making in reducing carbon dioxide emissions.”
Turning to the freeze on fuel duty, he added, “The Chancellor has continued his good record of helping to ease the travel and transport costs of individual motorists and businesses alike, but this sounds alarm bells for next year as by not extending the freeze further it potentially signals the country’s first increase in duty since 2011.
“While oil prices are expected to stay low, the oil market is notoriously hard to predict so there is always the chance that fuel prices will be considerably higher by the time of the Budget in March 2016 and any increase in duty would therefore have a negative effect on the economy.
“The Treasury’s own evidence shows that there is a compelling economic case for retaining a freeze on fuel duty because it is a hugely inefficient way of raising additional revenues for the Treasury.
“The report from April 2014, ‘Analysis of the dynamic effects of fuel duty’, indicates that the loss of additional taxation revenues resulting from the freeze is offset to a significant extent by the positive impact that lower fuel prices have on GDP.
“Equally, if fuel duty is increased the benefit is offset to a significant extent by the negative impact that higher fuel prices has on GDP.
“Separate independent studies also highlight the clear link that exists between the cost of fuel and economic growth. If new evidence now exists that contradicts this, we call on the Treasury to make this publicly available for scrutiny.”
James Stamp, head of transport at KPMG UK looked at the Chancellor’s commitment to invest in UK roads and said, “In the last budget, the Government announced a major road investment program worth £15billion.
“Today, the Chancellor announced that road tax income will be “ring fenced”. This provides some clarity about where funding for the ambitious road projects will be found.
“However, we note that while road tax raises around £6 billion per year, this is dwarfed by income collected from fuel duty which is around £27 billion.
“We believe that more of this income should be reinvested in roads and transport infrastructure in line with the Chancellor’s statement that money raised from drivers should be spent on the roads they drive on.”
The motor trade is worried by the long term implications of the Budget.
James Tew, chief executive office at iVendi, which has an office in Abergele, said, “There are two developments in the Budget that could affect the motor trade. The first is the new VED regime.
“The Chancellor is probably right in stating that there are increasing numbers of new car buyers who have become used to paying no VED and that the issue needed addressing in the medium-long term from a revenue point of view.
“However, detailed analysis will be needed to work out if it will advantage or disadvantage any particular types of vehicles in the new and used car sectors.
“The second is the potential extension to four years of the MoT test. This could have a definite impact on workshop revenues as it would mean fewer visits by the customer and their vehicle to the dealership and could a place an even higher emphasis on the importance of customer retention.”
Training is being undervalued for future growth in the transport sector, says the RHA.
Although welcoming the freeze on fuel duty to help industry, the absence of financial measures to support the UK’s road haulage industry to recruit and train truck-drivers will undermine the economic recovery warns the Road Haulage Association.
Richard Burnett, Chief Executive of the RHA said, “In his Spring Budget George Osborne recognisedthe shortage of HGV drivers and pledged action to help.
“This Budget does nothing to help solve the crisis,despite strong representation from across the industry. He has even failed to support the structure put inplace by the RHA and Job Centre+ to get unemployed people into driving.
“By the end of 2016 we will be some 60,000 drivers short if action is not taken now. We are working hard to address the problem and we have a quality process in place for getting unemployed people work experience in the industry and if suitable, a route into full time employment.
“This scheme is called Driving Britain’s Future but this alone will not solve the problem. We need specific targeted funding before it is too late.
“The RHA will continue to work closely with the Treasury and other government departments to ensure theChancellor keeps to the pledge made in the March Budget.”
