Vehicle Excise Duty (VED) on new cars changed on April 1. If this is news to you, you’re not alone. A recent survey by website Carbuyer revealed that nine out of 10 drivers were unaware of what was going on. In light of the fiasco that abolishing the tax disc turned into, it looks like another case of the Driver Vehicle Licensing Agency (DVLA) failing to communicate fundamental changes. What's more, the new rules came into effect on April Fool's Day...
Altering VED was dressed up by then chancellor George Osborne as fairer. The reasoning was that wealthier buyers who could afford newer, cleaner cars ended up paying less tax than those running older, more polluting models.
However, it probably hadn’t escaped his notice that returns on VED – about £6 billion per year in 2015 – were gradually dwindling. As cars’ CO2 emissions (by which the tax their owners pay is determined) were continually falling, the Centre for Economics and Business Research (CEBR) estimated that revenue from car tax would be down to a mere £4.4 billion by 2025.
So it’s out with the old system and in with a new flat rate. The first thing to note is that, year one aside, when tax is linked to CO2 output, the new system doesn’t reward drivers of economical, low-carbon dioxide or for that matter low-nitrogen oxide-emitting cars. Under the new system, after year one, a 1.0-litre Ford Fiesta will be subject to exactly the same tax as a 5.0-litre Ford Mustang.
Steve Gooding, director of the RAC Foundation, said: “There is much to be said for simplification, but the new VED regime sweeps away many of the incentives to buy a cleaner model beyond the first year. The impact on the fledgling market for more fuel-efficient and hybrid models must be a worry, with the VED changes coming after a tightening of the Government’s plug-in purchase grant scheme.”
Year one aside, when tax is linked to CO2 output, the new system doesn’t reward drivers of economical, low-carbon dioxide or for that matter low-nitrogen oxide-emitting cars
Lance Bradley, managing director of Mitsubishi, whose petrol-electric Outlander PHEV is the best-selling alternative fuel vehicle (AFV), knows how much of a worry. He said: “This new VED stops any kind of differentiation between a plug-in hybrid and a regular SUV. It makes no sense.
“Cheaper VED is a huge incentive for people to drive more fuel-efficient vehicles. We think this is a dangerous backward step. There’s a view that people who buy these [plug-in] cars are just taking advantage of the tax breaks and not using battery power. Owners say that 46 per cent of their mileage is on pure electric. We want to get people out of diesels into cleaner cars.”
The Society of Motor Manufacturers and Traders (SMMT) was equally concerned. Its chief executive Mike Hawes said: “The new regime disincentivises take-up of low-emission vehicles. New technologies like plug-in hybrid, the fastest-growing ultra-low emission vehicle (ULEV) segment, won’t benefit from long-term VED incentives.”
Plenty of objections, then, but any suggestions for alternatives? Edmund King, president of the AA, says the Government has missed a trick: “We think it could have come up with a graduated system that taxes cars according to carbon dioxide and nitrogen oxide emissions combined.”
However, in a report for the SMMT, the CEBR claimed the simplicity of the current system focusing solely on CO2 outputs should be maintained. It said: “Expanding the VED policy to incorporate additional emissions such as nitrogen oxides (NOx) and particulate matters (PMs) may complicate an already simple and comprehensible system.”
The new regime disincentivises take-up of low-emission vehicles
Mike Hawes, Society of Motor Manufacturers and Traders
Mitsubishi’s Bradley believes a mix of old and new systems would work best. He said: “The Government has invested millions (through the Plug-In Car Grant) in plug-in hybrid technology. Why not say cars below 50g/km of CO2 pay £25 VED?”
The CEBR report concluded: “Looking ahead, it is fundamental to retain the key principles of simplicity, fairness, continuity, certainty, proportionality and durability of VED policy in future years. From a manufacturer’s perspective, future changes to the VED regime should aim to be set out clearly and in a timely manner.”
While the new system is simple and certain, there are question-marks over fairness, continuity and durability. And if 90 per cent of people don’t know about it, and manufacturers like Mitsubishi weren’t consulted, it looks like the DVLA has failed at setting it out in a clear and timely manner, too.