A cross-party committee of MPs has come out in favour of the Chancellor’s plans to reform Vehicle Excise Duty (VED).
The Chancellor has come under intense criticism from his own backbenchers as well as the Conservatives for his plans to retrospectively apply the VED changes, which will push millions of cars into higher road tax bands.
Fleets running higher-polluting vehicles, such as MPVs and four-wheel drive SUVs, will be forced to pay hundreds of pounds more to tax each vehicle from 2010, even if they are already on the road.
It is this retrospective application of the new VED rates that has provoked the most criticism.
However, an Environmental Audit Committee report said that there is “nothing intrinsically unfair or unusual about setting new VED rates for cars that have already been purchased”.
It said: “It makes perfect sense to re-band existing cars, based on their respective carbon emissions, as this can be a way of influencing buyers of second-hand cars to choose models with lower emissions.
"This is enormously important, given that three-quarters of all car sales are second-hand.”
The committee of MPs also suggested that the Chancellor should “urgently examine proposals for a car scrappage scheme” that would provide payments in return for taking high emissions cars off the road.
Such a move has been cautiously welcomed by the SMMT, which represents motor manufacturers and dealers.
“We would be supportive of any scheme designed to encourage consumers into lower emission cars,” said an SMMT spokesman.
“However, we would look to government to explain how it would work without causing market distortions and be effective in encouraging consumers to buy more efficient vehicles.
"At present there seems to be no clear structure to the scheme and we would caution against anything which caused market fluctuations which might only bring forward a car purchase as opposed to the implementation of a long-term replacement cycle.”
The MPs also said the Treasury should have taken much greater care to explain the changes to VED in the Budget.
“If the point of green taxes is to change behaviour, they need to be properly publicised, so that people are fully aware of what they are being encouraged to do.
"A failure to advertise green tax details to the public, or explain them in a timely manner to Parliament, breeds suspicion about their objectives, increasing the perception of them as revenue raising measures with no environmental purpose,” said the committee.