Cuts in VAT reduce new-car prices and garage bills, while major road tax rises are delayed for a year.

Chancellor Alistair Darling’s pre-Budget report brought three pieces of good news for hard-pressed drivers.

First, an immediate reduction in Value Added Tax (VAT) from 17.5% to 15% means buying a new car, servicing and repairs will become cheaper – saving £2.50 on a £100 bill, or £300 on a £12,000 car. And because garages usually add VAT as a separate element of a bill, the reduction will be immediate and easy to see.

However, if you use a one-man garage to service your car, he may not earn enough to be VAT-registered – so the bill won’t change.

Second, pump prices for diesel and petrol should fall by 2-3p per litre. And with prices for unleaded already dipping below 90p as lower wholesale prices for oil feed through to forecourts, retail prices could slip as low as 95p/litre for unleaded and 99p for diesel. However, Mr Darling is also planning to introduce a 2p per litre increase in fuel duty, which will cancel out VAT savings.

Finally, changes to the road tax system which could see drivers of thirsty, polluting cars paying well over £400 a year are now to be postponed – for at least a year. Instead, you’re likely to pay only a £5 increase on what you do now, until 2010.

Stephen Jury


November 24, 2008

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