RAC Cars News


Green Cars Costing Treasury Millions

By raccars Published

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The Society of Motor Manufacturers and Traders (SMMT), has released a report suggesting that taxes will have to increase to make up for a shortfall in VED caused by high sales of low emission cars. Last year, 69% of new car buyers were exempt from tax in the first year of ownership, resulting in a huge loss of revenue for the Treasury.

New cars posting CO2 emissions lower than 130g/km are exempt from VED for the first 12 months, but with manufacturers going hell for leather to install clean, modern engines range wide, this status now applies to even larger, mainstream family cars. The VED exemption was introduced to help the Government meet its clean air targets, by encouraging new car buyers to opt for cleaner, greener engines. Cars which emit less than 100g/km of CO2 remain tax exempt after the first year, while all other vehicles are subject to a 13 step VED scale, which goes up to £505 annually for the most polluting vehicles.

The SMMT's report suggests that within the next decade, 75% of cars will meet total VED exemption standards, resulting in a massive drop in revenue for the Treasury. The Government made £5.7 billion from car tax in 2013, which is predicted to go down to £4.4 billion by 2025. Inflation adjusted, this means the Treasury's income from car tax will halve in the next decade.

The SMMT, therefore, warns that the current VED exemption standards are unsustainable and the shortfall will need to be recouped elsewhere. The Society suggested this could come from increasing VED on cars with higher CO2 emissions or posting toll charges on certain roads.

At one time, only hybrid or electric cars could meet VED exemption standards, but auto manufacturers have successfully risen to the challenge of producing cleaner engines, and the most modern petrol and diesel cars are so frugal and clean that, in some cases, they nearly match hybrid car emissions.

Mainstream cars, such as the VW Golf 1.6TDi and the new Jaguar XE 2.0d 163PS, can both boast CO2 emissions sub-100g/km, which entitles them to long term VED exemption.

The average CO2 emission rate for new cars sold in the UK is now 124g/km, well within the EU's target average of 130g/km. However by 2020, the EU's CO2 emissions target will be 95g/km. Manufacturers are expected to continue to work towards cleaner and more efficient combustion engines but, in the meantime, the uptake of alternatively fuelled vehicles is on the rise in the UK, meaning regulators may be forced to adjust the VED exemption regime sooner rather than later.

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