The Government has completely overhauled the vehicle tax system as part of the new Budget, which will see new cars sold from April 1 2017 facing a standard charge of £140. However, rates for cars already owned by motorists will not go up, George Osbourne has vowed.
The chancellor also announced that money raised by the vehicle excise duty (VED) will eventually go towards a Roads Fund, answering the criticism that car tax has seen motorists subsidising non-motoring Government functions.
The updated system will see new cars falling into three car tax bands – zero, standard and premium. The standard charge, which applies to cars emitting any CO2 (eg. not fully electric or hydrogen powered), will see drivers paying £140, while those purchasing a car that costs more than £40,000 will have to stump up a £310 annual surcharge in addition, for the first five years.
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.
This means that those with a car emitting less than 100g/km of CO2 – who currently pay nothing for car tax – will see a £140 jump every year if they were to replace their vehicle with an equivalent new model. Meanwhile, those driving gas guzzlers could pay up to £365 less per year if they were to replace their car with a similarly uneconomical machine.
Car buyers will, however, have to pay a premium to tax a thirsty car in the first year – based on CO2 emissions – with first year rates standing at £2000 for the least frugal cars, while vehicles that currently just sneak under the 100g/km free tax threshold will fall into the £120 band.
Despite tax rates rising for petrol, diesel and hybrid models which are currently eligible for free tax, Osbourne has stated that this £140 figure – which will apply to 95 per cent of all new cars when introduced – falls below the average £166 paid by motorists currently. He added: "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," reports the BBC.
Money raised by car tax will from 2020-21 be put into a Roads Fund. Fuel duty, meanwhile, is set to remain frozen this year, the chancellor has said.