In last week’s Budget, Brown announced a special rate of Vehicle Excise Duty of £210 annually for the most polluting vehicles.
The widely-anticipated move represents an increase of £45 on the previous top band and is widely viewed as a Government move to punish drivers of ‘gas-guzzlers’.
Brown also cut the tax rate to zero for cars emitting less than 100g/km of CO2 but only all-electric vehicles meet this level.
The second-lowest band, B, is lowered by £35 to £40, for middle-ranking family cars, Band C falls by £5 to £100, bands D and E are unchanged at £125 and £150 and band F rises by £25 to £190. Diesel cars face an extra levy of between £5 and £10.
It is estimated that changes to VED rates will give the Government a net revenue gain of £3.8 million from fleet buyers in 2006.
Vehicle sales and pricing specialist Jato Dynamics has based this figure on CO2 ratings on more than a million cars bought by fleets during 2005.
It calculates that the changes will cut the price of a tax disc for 330,000 cars bought by fleets in the coming year and increase it for more than 220,000 cars. It will remain unchanged on 500,000 cars.
The UK motoring manufacturing industry has warned that the changes to VED send a worrying message to car buyers and manufacturers about the future of motoring taxes.
Christopher Macgowan, chief executive of the Society of Motor Manufacturers and Traders (SMMT), said: ‘Stability, certainty and long-term must be the watchwords when changing sensitive tax instruments. None appears to have been applied here.
‘Now the uncertainty that followed the collapse of grants for the cleanest vehicles will be mirrored by fears about a Budget-by-Budget bidding war on road tax changes.’
Despite media attention being focused on drivers of so-called ‘Chelsea tractors’, being financially hit by the move, the organisation said it will also affect buyers of larger family cars and saloons.
Fleet managers’ organisation Acfo broadly welcomed the move for its environmental merits. In a statement, it said: ‘The reform of Vehicle Excise Duty, which penalises high CO2-emitting vehicles and rewards people driving more environmentally-friendly vehicles, seems sensible and rational in light of concerns over the level of CO2 emissions.’
Director Stewart Whyte added: ‘By removing some motorists from the VED charge and reducing the tax for many others, the Chancellor appears to be signalling a sharp reduction in the fiscal importance of VED.
‘The Government has consistently spoken about introducing road charging on a national basis. The changes in VED announced last week could amount to the first moves towards the eventual phasing out of VED as a tax, and its replacement by pay-as-you-go motoring.’
A spokesman for the British Vehicle Rental and Leasing Association (BVRLA) gave the move a mixed reception.
He said: ‘The increase for higher polluting vehicles is not welcome but the BVRLA is pleased that the Chancellor has recognised the importance of helping to shape the future market by restricting the increase only to new cars and is not punishing existing users. The reductions in VED for less polluting cars is of course welcome as many BVRLA members use such vehicles in rental and other fleets.’
The RAC Foundation, an independent body which represents the interests of UK motorists, says the move will help drivers ‘make a greener choice of car’.
And Nigel Underdown, transport advice manager for the Energy Saving Trust, said that as far as the environment is concerned, last week’s Budget announcement was the ‘best in a number of years’.
He added: ‘The changes in VED, while moderate, send the right signals to fleet managers and company car drivers to choose cleaner vehicles. For vehicles in the new G Band the real test of these changes will be how residual values are impacted. While most fleets will view the increase in VED costs as modest, the secondhand market will become increasingly nervous of high CO2 cars and this will impact on whole life costs.’
One vehicle leasing and fleet management company has raised concerns that high-emitting CO2 vehicles may suffer a downturn in the used car market as a result of the changes to road tax.
Terry Bartlett, managing director of Inchcape Fleet Solutions, said: ‘Vehicles subjected to the highest rate of VED may prove less popular than presently in the used car community. Consequently residual values will fall and monthly rental rates will, therefore, increase.’
A selection of cars which will be affected by the Chancellor’s new top rate of VED
BIK tightening ‘a disappointment’ – Acfo
THE further tightening of company car benefit-in-kind tax in 2008-09 has been described as a disappointment by fleet managers’ association, Acfo.
From then, the Government will introduce a lower 10% rate for cars with emission below 120g/km and will lower the threshold for the minimum charge rate for calculating benefit-in-kind from company cars from 140g/km to 135g/km.
Acfo director Stewart Whyte said: ‘It is clear that vehicle manufacturers are having some difficulty in driving through the technological changes that will see a significant rise in the number of very low CO2-emitting cars on sale.
‘We hope that all parties will work together to ensure that the typical company car becomes more fuel and CO2-efficient, and therefore tax-efficient, so that the impact on drivers of the tax change is neutral.’
Whyte added: ‘We cannot have a company car tax system which takes no account of the technical realities of the vehicles available and, as a result, penalises company car drivers through no fault of their own.’
Tax expert Alison Chapman said the move should have little immediate impact on car manufacturers.
She added: ‘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/km 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.’
Nigel Underdown, transport advice manager for the Energy Saving Trust, said the move throws down the gauntlet to manufacturers to produce mainstream vehicles that fit in the lowest tax bands.
He said: ‘With the incentive in 2008/09 of cars sub-120g/km being taxed by 10% instead of 15% the challenge will now be to produce cars that meet these emissions standards while being attractive, functional fleet vehicles – and we watch with interest to see if industry rises to this.’
Fleets will also welcome the Chancellor’s move to keep a fuel duty increase on hold for a further six months.
Robert Piezcka, marketing director of fleet and fuel management company Arval, said: ‘Any increase in duty would have been a tax on business and hardly in the interests of continued UK economic prosperity.’
Budget 2006: industry reaction
‘GENERALLY, it is a broadly neutral Budget for the fleet industry with no major changes, However, the further tightening of company car tax in 2008-09 is a minor disappointment.’
Stewart Whyte, director of fleet managers’ association Acfo
‘REDUCED tax for cleaner vehicles is a great incentive to help motorists choose the most environmentally friendly model suitable for their needs.’
Edmund King, executive director, RAC Foundation
‘WE welcome the Budget’s focus on providing incentives for low carbon vehicles and fuels to help meet climate change targets. While the monetary amounts involved are relatively small, they are a clear signal to producers and consumers alike of the likely direction of future tax policies.’
Greg Archer, director, Low Carbon Vehicle Partnership (LowCVP)
‘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 leaner motoring environment in Britain.’
Tom Fidell, director general, LP Gas Association (commenting on the fact that a price differential between LPG and petrol/diesel will continue until 2009)
‘WHAT was welcomed was the fact that we have certainty over the taxation of company cars and fuel which gives comfort to those changing their company vehicle.’
Alastair Kendrick, tax partner, Wilder Coe
‘WE are extremely concerned that essential users of larger vehicles in rural areas will be heavily penalised by the new VED car tax rates.’
Matthew Carrington, chief executive, Retail Motor Industry Federation (RMI)
‘ALTHOUGH the new lower 10% band for company cars with CO2 emissions of 120g/km or less affects a small percentage of cars currently available, we believe it will motivate manufacturers to offer more cars with lower CO2 outputs.’
Nick Sutton, chairman, Provecta
‘WE welcome the continued evolution of environmentally-friendly motoring which the Chancellor has outlined.’
Terry Bartlett, managing director, Inchcape Fleet Solutions
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