In response Alison Chapman, automotive tax partner at Deloitte, said: 'The introduction of the new 10 per cent band for company cars with CO2 of 120g per kilometre or less from 2008/09 should have little immediate impact on manufacturers.

'Most manufacturers are keen to develop cars that are as environmentally friendly as possible, and recognise that in doing so, taxation and running cost advantages will encourage drivers to select their products. However, manufacturers have to consider whether producing significantly more sub 120g cars using current technology will attract enough customers to warrant increasing production, or, should they focus their efforts on new technologies such as hydrogen cells.'

Vehicle excise duty

The Chancellor heralded the changes as a ‘radical reform’ as he singled out highly polluting 'gas guzzlers' for tax increases.

Taking effect from tomorrow a zero rate for the small number of cars with the very lowest emissions will be introduced. Instead of £75 for cars with the lowest emissions there will be a ‘significantly lower rate’ of £40.

The details:

The Government said 50% of cars will see their VED frozen or reduced in total. It said three million cars will pay VED of £100 or less.

‘Instead of just 300,000 motorists paying £100a year or less, 3 million will now pay £100 or less’ Chancellor Gordon Brown said.

VED bandings

To work out the VED rate for your car click here.

Fuel duty

The Government also announced that the duty differential between LPG and main road fuels will be reduced by 1 pence per litre each year to 2008/09 and that the duty differential between natural gas and main duty rates will be maintained each year until 2008/09.

Tom Fidell, director general of the LP Gas Association, said: 'This is a clear message of support for LPG for the long term which gives motorists and fleet managers the confidence to purchase LPG vehicles and contribute to a cleaner motoring environment'.

Capital allowances for cars

The Government is looking at further modernisation of the capital allowances for company cars. Options include incentives for the take up of cleaner cars, including introducing a new car pool with a range of first-year allowances for cars depending on carbon dioxide emissions. This would build on existing 100% first-year allowances for cars with very low emissions and reforms to VED and company car tax.

A consultation document has been published. To view click here.

The background and options:

The Government wants to gain opinions from the fleet industry on modernising tax rules which restrict tax relief on business spend on cars worth more than £12,000.

Currently, the car is not included in the general plant and machinery pool but accounted for separately, in its own pool.

The writing down allowances are restricted to a maximum annual amount of £3,000 and when the car is disposed of, a balancing charge or allowance is likely to be generated.

The Government has considered three options for reforming the current capital allowance rules for cars:

The consultation period runs until September 22.

VAT fuel scale charge

The charge, for taxing road fuel when business cars are used for private motoring, is being adjusted with effect from May 1 to reflect changes in fuel prices.

The company car fuel benefit charge calculation figure will be maintained at £14,400 in 2006/07.

And finally, ‘beer and fags’

And a word from the Conservatives

Tory leader David Cameron said he welcomed the changes on carbon emissions because ‘I came up with them’.

He said: ‘In a carbon-conscious world, we have a fossil fuelled Chancellor.’