Sara Woollard, policy adviser to the Inland Revenue, said: 'Provisional analysis suggests that people who do not drive many business miles could downsize, and we expect some to cash in their allowance and move back into a company car.' This will not undermine the 'green' credentials of the new environmentally-based company car tax because drivers will have to choose cleaner, more fuel-efficient, vehicles to cut their tax bills.
The new tax will be based on a proportion of a car's list price, graduated by carbon dioxide emissions per kilometre. This means that drivers prepared to choose a more fuel-efficient vehicle can achieve significant tax savings. Broadbrush figures suggest that the new system could start at 15% of list price for vehicles emitting less than 135g/km of CO2, and rise by 1% of list price for every additional 5g/km of CO2.