RAC Cars News


The Budget For Car Owners

By raccars Published

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Chancellor George Osborne announced a dramatic new budget this week, with much talk about minimum wages and tax credits, but how were car owners affected?

The main news for car owners after this week's budget announcement is that road tax or VED (Vehicle Excise Duty) is going up. Luxury and eco-friendly car owners will suffer the worst, with Osborne planning to raise revenue to spend on roads network maintenance and improvements.

The changes will apply from April 2017, and will see the highest VED band rate, for the most polluting cars, go up to £2,000 for the first year of ownership compared to £1,100 now. Any car producing carbon emissions will be subject to VED of £140 per year after the first year of registration. This includes even low emissions vehicles, including the Toyota Prius. At the moment, VED is exempt for low emissions vehicles, which has encouraged a lot of people to invest in greener cars.

Those who buy a new car worth £40,000 or more will be subject to an extra surcharge of £310 every year for the second to sixth years of ownership, which is causing concern to manufacturers. Car makers are concerned that the changes to the VED system will impact negatively upon both manufacturing and sales, in Britain's currently booming new car market, particularly in the luxury and eco-car sectors. Currently, VED is paid on only 30% of new cars because so many buyers are choosing low emissions, tax exempt vehicles.

From April 2017 however, VED exempt status will apply only to vehicles with zero CO2 emissions, which means all electric or hydrogen fuelled cars.

The Chancellor claimed his budget was fairer to poorer families, who are often paying higher VED on older, dirtier vehicles, whereas better off households have been able to afford to invest in newer, cleaner cars and escape paying VED. The new £140 flat rate VED actually works out cheaper than the average of £166 paid now. Mr Osborne has declared that all extra revenue from the new rates of VED will be allocated to a roads network improvement scheme.

The cuts to VED which we have been enjoying the last few years have encouraged so many car buyers to invest in cleaner engines that the Treasury's revenue from road tax has plummeted. The Chancellor pointed out that the current rate of tax is therefore unsustainable, and claims that existing car owners will not see any change to the amount of tax they pay, and the new rates will apply to cars bought from April 2017.

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