More new cars will be subject to vehicle excise duty tax from April 2017 due to falling CO2 emissions, Chancellor George Osborne announced in today's Emergency Budget.
Osborne said that if the current VED regime remained in place, by 2017 three-quarters of new cars will pay no road tax in their first year.
He said this was not "sustainable" and was not "fair" to people who were unable to afford new, low CO2 emitting cars.
The new VED regime will still be based on CO2 emissions but would be split into three bands - zero emission, standard, and premium.
Cars with a list price of above £40,000 will attract £310 per year for the first five years in which the standard rate is paid.
Table: VED bands and rates for cars first registered on or after April 1 2017
CO2 emissions (g/km)
First year rate
Osborne also announced the creation of a new roads fund into which VED revenue would go, and this would be used purely for road investment.
"Every pound raised from VED from the end of the decade will go into the fund to pay for the sustained investment roads so desperately need," he added.
Other Budget announcements:
- The Government will also consult on extending the length of time a new car has before it has its first MOT test from three years to four years.
- Fuel duty will remain frozen this year.
- The Government will publish a second road investment strategy by the end of this parliament.
- The Government committed £14 million to local road improvements - £5.5m for maintenance and upgrade of the Swanswell Viaduct, £3m for Tameside Metropolitan Borough Council to make structural improvements to walls around local roads and £5.8 for the A666 Highways Maintenance Scheme in Bolton.
- The Government is improving road connectivity in the north by upgrading the A628 and dualling the A61, and by upgrading the final stretch of the M1/A1 route between Newcastle and London to motorway. The Government will look into the case for renaming the A1(M) north of Leeds as the M1. The A1 will be dualled north of Newcastle as far as Ellingham, and access to the Port of Immingham will be improved with upgrades to the A160/A180.
- The Government will legislate to apply a reduced rate of fuel duty to aqua-methanol in Finance Bill 2016.