Vehicle tax system overhauled in new Budget

Updated: 
Britain Budget

Yesterday's budget has brought big changes for new car buyers, with a new Vehicle Excise Duty (VED) tariff introduced for cars bought after April 1 2017.

The new system will see new vehicles fall into one of three tax bands: zero, standard and premium. Only cars emitting 0g/km of CO2 (fully electric or hydrogen powered) will be eligible for zero VED, while owners of other cars will now pay £140 per year, after a first year payment based on CO2 emissions. Buyers of new cars costing over £40,000 will also be subject to an additional £310 annual charge for the first five years.

The new tariff only applies to new cars, and current owners will continue to be taxed on the current CO2-based system.

Mr Osborne said: "There will be no change to VED for existing cars - no one will pay more in tax than they do today for the car they already own."

He also announced that money raised from VED from 2020 will be put into a Roads Fund, for exclusive use on the UK's transport infrastructure.

Despite the chancellor's assertions that drivers would on average be paying less than they currently do, industry experts have raised concerns that the new tax system doesn't benefit efficient vehicles such as plug-in hybrids, which are being bought in increasing numbers.

Mike Hawes, SMMT chief executive, said: "While we are pleased that zero-emission cars will, on the whole, remain exempt from VED, the new regime will dis-incentivise take up of low emission vehicles. New technologies such as plug-in hybrid, the fastest growing ultra low emission vehicle segment, will not benefit from long-term VED incentive, threatening the ability of the UK and the UK automotive sector to meet ever stricter CO2 targets.

"The introduction of a surcharge on premium cars also risks undermining growth in UK manufacturing and exports. British-built premium cars are in increasing demand at home and globally, and the industry helps to support almost 800,000 jobs in the UK. Levelling a punitive tax on these vehicles will almost certainly impact domestic demand."

Also likely to affect motorists is a rise in insurance premium tax from six per cent to 9.5 per cent, which is likely to result in a rise in the cost of annual cover for both vehicle and home owners.

However, there is some small respite, as Mr Osborne announced that fuel duty would remain frozen for another year.

What do you think of the changes to the vehicle tax system? Have your say in the comments section below.