Prepare for sharp hike in car tax

George Osborne's Autumn Statement arrives shortly. Will there be a fuel duty freeze? It's unlikely given that the total Treasury fuel duty take is -1.7% down on last year - from a massive £27.26bn in 2010/11 to £26.80bn for 2011/12.

But there's another nasty tax lurker the Chancellor may well likely launch at British motorists tomorrow.%VIRTUAL-SkimlinksPromo%

Mean to green?

That could be a sharp rise in VED duty, hitting those people who've opted to buy 'greener', more economical cars in recent years. Currently all cars in Band A up to 100g/km CO2, for example, pay zero in road tax while drivers of Band B and C - cars that emit up to 110g and 120g respectively - pay £20 or £30.

But in the Budget 2012 document published earlier - see page 70 - the Treasury said: "The Government will consider whether to reform VED over the medium term to ensure that all motorists continue to make a fair contribution to the sustainability of the public finances, and to reflect continuing improvements in vehicle fuel efficiency."

Bigger burden

In other words, prepare to pay more - possibly a lot more - to tax your car. Expect also to hear plans for motorists to pay for road tax by direct debit in order to ease the growing load of this expense. (You can check your rate with this link)

In the last 20 years, UK motoring has actually cut its fuel consumption by 20% (12.8 billion litres) however it contributes 144% more (£15.81 billion) in fuel duty tax, according to the AA. The AA says it's hoping for a fuel duty freeze, but it could be in vain.

Duty freeze plea

"The Chancellor should announce a fuel duty freeze," says AA president Edmund King. "A freeze in duty will not undermine Treasury tax receipts as the previous above-inflation increases in duty and higher VAT have more than compensated."

King goes on: "Arguably, the Government would rake in more revenue if it tackled the causes of stubbornly high fuel prices in the UK - allowing cash-tight businesses, lower-income families and the 28% who restrict their spend on road fuel to use their vehicles as they need rather than as they can afford."

Price breakdown of a litre of fuel (AA figures)

Petrol – latest average UK price 133.19p a litre, of which:
Duty – 57.95p
VAT – 22.20
(Total tax = 80.15 or 60.2%)
Wholesale * - 46.65
Margin/transport/etc – 6.39p

Diesel – latest average UK price 141.06p a litre, of which:

Duty – 57.95p
VAT – 23.51p
(Total tax = 81.16 or 57.5%)
Wholesale * - 52.69
Margin/transport/etc – 7.21p

(* Wholesale values from 14 days ago to reflect time taken to reach the pump. Source:

Impact of 3.02p-a-litre fuel duty increase

With VAT, extra cost per litre of petrol or diesel is 3.62p a litre.
Refuelling a car: small car (50 litres) = + £1.81, Mondeo (70 litres) = + £2.53
Two-car family extra monthly cost (106.17 ltrs per car) = + £7.69

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Prepare for sharp hike in car tax

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