Industry commentators warned almost a year ago that new car price cuts could save fleets, company car drivers and private buyers nothing as the Government would recover the 'lost' billions of pounds in revenue by increasing other taxes.
Based on a 17.5% reduction in list prices with 7% being passed on to the customer in transaction price, CAP calculated the Treasury would immediately lose £300 million a year in company car tax because it is based on a car's list price.The theoretical 7% reduction in actual transaction price would result in a £3 billion reduction in VAT receipts over three years.
Mark Norman, editor of CAP Monitor - Future Residual Values, said: 'The Government relies very heavily on the income earned from vehicle and motoring-related taxation. Could we really expect the Chancellor of the Exchequer not to claw back the kind of lost revenues we have projected.'
With company car tax calculated currently from a 35% of list price threshold, the Government could look to increase that percentage so that the tax take remains identical if recommended retail prices fall. Equally it could amend the outlined company car tax system due to be introduced in April 2002 to ensure tax levels are not damaged.