The committee claimed the relatively low cost of the annual road tax was causing a ‘leakage’ among executives who are opting out into high-emission cars rather than staying in the company car scheme and picking cleaner vehicles.
A memo for the meeting from Friends of the Earth read: ‘Although company car tax is in general working better than Vehicle Excise Duty, there is an apparent leakage at the executive end of the market to the less effective VED regime, and this needs to be curtailed.’
Although no figures were suggested for the highest rate of VED, the committee agreed that it would have to be considerably higher than at present, and would have to be related to carbon dioxide emissions.
The chairman, Tim Yeo MP, asked whether the top rate of VED should be unlimited in order to keep drivers in cleaner company cars.
Brian Samuel, from Friends of the Earth, replied: ‘Yes, and it has worked in the business company car sector, where you have seen through the pricing mechanisms more efficient, lower carbon vehicles being purchased. It has got infinite scope.’
The committee agreed that addressing the way VED works would make the two tax systems more comparable and ‘prevent incentives which flip from one system to another.’
At present, highest emitting cars are charged annually £165 (diesel) and £160 (petrol) in duty, with the top banding for cars of 186g/km of CO2 and above.
A driver in a £68,297 Range Rover 4.4 V8 Vogue SE auto, emitting 352g/km would pay £9,722 in benefit-in-kind and VED tax, while opting out would see that tax bill fall to £160 for a private purchase.
Last year, the Energy Saving Trust called on the Government to ‘radically reform’ VED rates, claiming the current system ‘lacks teeth’ and does not do enough to incentivise people to choose lower emitting vehicles (Fleet NewsNet, June 9, 2005).