Drivers opting for the cleanest, least CO2-emitting cars may have enjoyed reduced car tax rates in recent years, but a new report warns that price changes will need to occur if the government is to prevent a multi-billion-pound hole in its coffers.

In a bid to reduce carbon dioxide emissions from vehicles, the Treasury introduced a CO2 tariff which exempts the cleanest vehicles from paying tax in the first year and imposes vastly reduced rates in following years. Cars emitting under 100g/km CO2 are exempt from vehicle tax entirely.

Now, however, the Society of Motor Manufacturers and Traders (SMMT) has said that this tariff will need to be revised, as increased sales of so-called green cars cause a huge drop in tax revenue.

Over the past 12 months, 69 per cent of new cars sold were exempt from vehicle duty in their first year, and the SMMT predicts that around 75 per cent of all cars will not be liable for tax at all in ten years, should the current system remain in place.

This could leave the government struggling to cover the estimated £1.5billion tax deficit this would cause.

“The positive consequence of manufacturers supplying and consumers choosing ever-lower carbon-emitting vehicles is less supportive of revenue raising and this is set to become more acute,” the SMMT report states.

“Unless regulators choose to alter the regime in the near future, government revenues from VED will decline to unsustainable levels.

“Around two-thirds of new vehicles registered are not liable for VED, and this proportion is set to rise.

“These increasingly efficient cars not only place pressure on the revenue raised from the first-year VED rates. Over time this shift has had an impact on the total VED take as older, more-polluting cars are replaced.”

On the plus side, the UK’s average vehicle CO2 emissions have dropped to a record low of 124.6g/km. This reduction in pollution has been bolstered by the introduction of battery electric and hybrid vehicles, as well as manufacturers collectively undertaking comprehensive revisions of conventional combustion engines to make them more efficient.

Have you invested in a green car to take advantage of lower tax rates and running costs? What do you think of the SMMT’s recommendations? Let us know in the comments section below.

Picture: Fotolia

Daljinder Nagra


April 28, 2015