Concerns over new vehicle tax

The RAC is fearful changes to the Vehicle Excise Duty system are likely to dampen the enthusiasm for a hybrid or electric vehicles (EVs).

Research conducted for the RAC Report on Motoring 2015, highlight almost one in five motorists (19%) say they would consider a hybrid or electric vehicle (EV) as their next car, yet the motoring organisation fears changes to the Vehicle Excise Duty system will hamper this.

Although 19% of motorists saying they would consider buying some form of low-carbon vehicle is a significant minority, the appeal of lower running costs is bound to lose some of its ‘shine’ as changes to the Vehicle Excise Duty (VED) system announced by the Chancellor in the 2015 summer Budget will reduce incentives to run low-emission vehicles.

From 2017, only new cars which produce zero emissions will be exempt from VED in the first and subsequent years whereas at present, cars which produce 100g/km or less in carbon dioxide permanently avoid VED. Under the new system these lower-emission models will pay between £10 and £100 in first-year VED, and after year one, all vehicles other than those with zero emissions will face a flat £140 annual charge.

RAC chief engineer David Bizley said, ‘Treasury income from VED is currently falling each year as the average carbon dioxide emissions of new cars falls so the Government does need to take action to stabilise the income from VED, not least because VED will be ring-fenced from 2020/21 to fund the development and maintenance of the strategic road network across the UK.

‘We accept the current VED system needs to be changed, but the Government’s plans to remove one of the financial benefits of running plug-in hybrid or extended-range electric vehicles – the fastest-growing part of the ultra-low emission vehicle market – could easily put some motorists off buying them. The Government needs to find a way of continuing to incentivise motorists to switch to low-carbon whilst maintaining income for the Treasury.

‘owever, it is also important to recognise that the motoring taxation framework as we know it today will need to change as more and more low-carbon vehicles take to the road. As this happens, fuel duty revenue from petrol and diesel, which currently stands at 57.95p in every litre sold and generates an annual income of around £26bn a year for the Treasury, will shrink to a fraction of its current level leaving a big hole in the Treasury finances.

‘Under the current taxation model, the more successful we are at decarbonising the vehicle parc, the bigger the hole will be in motoring taxation income for the Treasury. This is something the Government needs to be planning for now and can only be addressed by a radical overhaul of the motoring taxation regime.’

Department for Transport figures show that registrations of ultra-low-emission cars (predominantly pure electric cars such as the Nissan Leaf and plug-in hybrids such as the Mitsubishi Outlander) increased by 19% to 34,666 in the second quarter of 2015 from 33,697 between January and March. Since the start of 2010 and the end of June 2015, some 37,742 ultra-low emission vehicles have been registered in the UK.

Overall, combined hybrid and electric car sales add up to less than 3% of the UK new car market.