Summer Budget 2015 changes to Vehicle Excise Duty
Headline: The Chancellor’s changes mean that from 2017 a new greener car will cost nearly a £1,000 more. The changes hit greener cars far harder than more polluting cars.
Detail: The Budget announced changes to the Vehicle Excise Duty (VED) new cars will pay from 2017 (i): both in their first year, and in subsequent years. VED for cars registered before 2017 remains the same.
There are 4 main changes:
- Most greener cars (below <120 gCO2/km) now pay VED in the first year, up to £160, where previously they paid nothing. Only zero-emission cars still pay zero VED.
- The first year VED rises more steeply – up to a top rate of £2000 for the most polluting car.
- VED for subsequent years was banded before – the more polluting cars paying more, up to £505. Now there is a flat-rate of £140 for all cars, except zero-emission vehicles, which pay zero:
o Over time this strongly benefits more polluting cars, which pay hundreds of pounds a year less;
o Over time this penalises greener cars – which pay around a hundred pounds a year more.
- Cars costing over £40,000 pay an additional £310 a year for the first five years; currently all cars over 225g/km (the top 2 bands) cost more than £40,000.
In total, the net effect of all these changes is that motorists buying a greener car will pay around £800-£1000 more than with the current VED system (ii). See graph and table on page 2. Overall, the changes will raise £3,480 million for the Treasury in the first four years from 2017.
Friends of the Earth view is that these changes are bad for people, the environment and industry. Manufacturers have developed over 2,000 models of greener car (iii) – the Chancellor has just made almost all of them more expensive to buy.
Alongside putting an energy tax on renewable electricity, supporting more oil and gas drilling and pledging more road building, this is a bad Budget for the environment. The Chancellor is jamming the brakes on the Government’s ambitions to tackle climate change, when he should be putting his foot on the accelerator.
i Summer Budget 2015 policy costings, pages 24-25. Current VED rates are set out here.
ii Based on new car ownership of 7 years.
iii Below 120gCO2/km.
iv This figure includes the new annual £310 charge for 5 years for cars costing over £40,000.
Policy note: July 2015. Summer Budget 2015 changes to Vehicle Excise Duty available as PDF.