Budget day tax hike warning for motorists

In case you hadn't heard, this Wednesday is Budget day. Tax on fuel remains at the forefront of motorists' minds, with it adding almost 59p to the cost of every litre of fuel.

Rumours are that Chancellor George Osbourne is planning to scrap the planned increase, but according to motoring website www.honestjohn.co.uk, families should be more worried about a possible rise in Vehicle Excise Duty (VED). Or in other words, car tax.
Think back to 2008 when the then-Chancellor Gordon Brown removed the exception on cars registered from 2001-2006 that produced 225g/km of CO2 and thus doubled the cost of road tax for many family cars in an instant.

When Alistair Darling took over in 2008, he did some swift backpedalling and announced that this exemption would remain. The result was confused motorists and this was made worse with the introduction of last year's 'showroom tax.'

However, the fact is that more people are choosing lower emission cars that have reduced road tax rates and whilst good for the environment, it's bad for the Treasury as it means diminishing VED earnings.

Dan Harrison, editor of honestjohn.co.uk, said of this situation: "Once our roads were full of vehicles that brought in more than £100 per year in road tax, but the trend towards lower emission cars means they are being replaced by models that generate no road tax or as little as £20 or £30. Something has got to give."

"The Chancellor can either put up road tax in bands A, B and C, punishing those who have opted for lower emission vehicles to avoid higher taxes. Alternatively he could move the goalposts, or he could leave things as they are and continue to take less in VED."

When band A taxation was introduced back in 2000, less than 1,000 cars qualified and the majority of motorists that were able to take advantage drove the first-generation Honda insight. According to the March 2011 SMMT New Car CO2 Report, the amount of cars that now qualify for this level of taxation has jumped to 37,000 with a further 139,000 and 335,000 in bands B and C, which also command zero VED respectively.

If you're worried about the price at the pumps, read our 10 tips to save fuel.
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