Government to Introduce Radical Changes to the Vehicle Excise Duty on New Cars

16th July 2015

George Osborne has unveiled changes for new car buyers in the recent budget with a new Vehicle Excise Duty (VED) tariff being introduced for cars bought after April 1 2017.

The Chancellor remarked that if the current VED regime remained in place within 2 years 75 percent of new cars will pay no road tax at all in their first year.
He said this was not "sustainable" and was not "fair" to drivers who were unable to afford new, low C02 emitting cars.

Vehicles will fall into one of three tax bands: namely zero, standard and premium. Only those cars which emit 0g/km of C02 (in other words fully electric or hydrogen powered) will be eligible for zero VED. Owners of other cars types will be expected to pay £140 per year, and those spending over £40,000 on a new car will also be subject to an additional £310 charge payable annually for the first five years.

This new tariff applies to new cars only; current drivers will continue to be taxed on the current C02-based system.

Commenting The Chancellor 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."

Money raised from VED from 2020 will be allocated to a Roads Fund, with plans to support the UK's transport infrastructure.

Industry experts have raised an eyebrow over some of the measures. In particular they say that the new tax system doesn't deliver benefits to drivers of low-emission vehicles such as plug-in hybrids.


Mike Hawes, SMMT chief executive, remarked: "While we are pleased that zero-emission cars will, on the whole, remain exempt from VED, the new regime will dis-incentivise take up of low emission vehicles. New technologies such as plug-in hybrid, the fastest growing ultra low emission vehicle segment, will not benefit from long-term VED incentive, threatening the ability of the UK and the UK automotive sector to meet ever stricter CO2 targets.

"The introduction of a surcharge on premium cars also risks undermining growth in UK manufacturing and exports. British-built premium cars are in increasing demand at home and globally, and the industry helps to support almost 800,000 jobs in the UK. Levelling a punitive tax on these vehicles will almost certainly impact domestic demand."

There was some good news however, as Mr Osborne also announced that fuel duty would remain at the same levels for the next twelve months.

By Tracey McBain