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Industry Response to the Budget

Sales taxes on higher emitting cars have little effect on CO2 emissions and create an unwelcome market distortion. That’s the view of the SMMT to news that buyers of new cars with CO2 above 160g/km will have to pay a supplement to VED on first purchase from 2009. For cars emitting more than 255g/km CO2 this rises to £950 (£455 of which is VED).

“Since the introduction of CO2-based road tax in 2001, there has been a clear trend towards lower-CO2 new cars,” said SMMT chief executive Paul Everitt. “Encouraging even more buyers to choose models with class-leading emissions should be the priority. We are therefore pleased to see an increase in the number of bands to 13 from 2009.

“However, introducing what is effectively a sales tax for many new cars is a retrograde step. Trying to force people out of high-value cars has no environmental merit and will be seen as a smokescreen for revenue-raising.”

The SMMT believes the key to driving demand for cleaner cars is to improve incentives in what are currently the middle bands; these make up more than three-quarters of new car sales. It is encouraged therefore that the number of bands will increase to 13 and welcomes the certainty that comes from a system set until 2011.

The budget will take VED to a more linear framework, like that applied to company car tax. This rewards drivers who specify lower-emitting models within each class, as well as lower CO2-emitters overall, through a linear pathway of 5g/km tax increments. Since its introduction in 2002 this long-term model has worked, encouraging sales of lower-CO2 emitting company cars.

Meanwhile the Royal Automobile Club Foundation has welcomed the decision to delay the 2p fuel duty increase as “the only bright spot in a budget that seemingly does nothing positive for the motorist.”

Welcoming the fact that the beleaguered British motorist has been given a short breathing space, Sheila Rainger, Acting Director of the Foundation said: “This sensible decision is the only bright spot in a budget seemingly doing nothing positive for the motorist. But postponing the increase only delays the misery for British motorists struggling to make ends meet. The Chancellor should look again at the idea of a fuel duty stabiliser to protect British motorists from the shocks of the global oil market.”

The cost of fuel has leapt 20% in the last 12 months as the global oil price rises to over $100 per barrel – and any increases in duty would disproportionately affect motorists on low incomes and those in rural areas who are dependent on their cars.

The Foundation believes the motorist should no longer be expected to top up the ‘public purse’ with taxes disguised as environmental considerations, now that the Stern Review has demonstrated that motorists are the only energy users meeting their carbon costs.

“There is no environmental case for higher taxes. Based on the Government’s own figures in the Stern Review, the full cost of the greenhouse gases produced by road transport amounts to no more than 14p per litre. Road users are the only energy users paying the full cost of their carbon emissions; unlike rail or air travellers.”

The Foundation is disappointed there has been no provision for additional spending on improving the UK’s road network considering that both the budget and The Eddington Transport Study have recognised the importance of reducing congestion to develop and maintain the economy.

The RAC Foundation has already highlighted in its Roads and Reality report that by 2041 there will be an 11% increase in population and a 38% increase in vehicle kilometres driven, putting our already overburdened road system under increased pressure.

Rainger added: “The changes we face in future decades have simply not been taken into account. It seems the Government has decided to brush these forecasts under the carpet.”

On the subject of new tax proposals, she said: “Graduated VED has helped consumers choose the most efficient car to meet their needs. As long as new bands inform and do not confuse the customer they will be welcome. The impact of new bands on buying behaviour should be carefully monitored and the thresholds adjusted if necessary.”

Commenting on the first year tax changes, Rainger pointed out: “Measures that make people think carefully about choosing a vehicle that matches their needs are always welcome. However, we believe incentives for choosing a more efficient car are more likely to win the public over than swingeing taxes. The Government should monitor the effectiveness of this tax and be prepared to drop it if it is not working.”

The Retail Motor Industry Federation (RMIF) said this about the budget: “The Chancellor is attempting to encourage the motorist to move to lower emitting cars with the increase in Vehicle Excise Duty (VED) for large vehicles. He asserts that the reclassification of vehicles into six new VED bands will force motorists to choose lower emitting vehicles, but the inducements are so small, that the effects are likely to be equally small.”

“There are more effective ways to influence the buying habits of motorists than the “blunt instrument” approach of a road tax increase. It will be those who really need larger vehicles for their daily lives that suffer most. Families, rural dwellers, farmers, and business users are less able to absorb this increase, as they are already paying extra to use their vehicles through fuel duty, company car tax, and other measures.”

“Instead of punishing motorists for choosing what is available, the Government needs to do more to assist vehicle manufacturers to develop cleaner vehicles. Consumers need to be given a proper choice, and manufacturers and vehicle dealers need to be able to give it to them.”

The Road Haulage Association welcomed the announcement by the Chancellor that the 2 pence per litre fuel duty increase is to be deferred until October 2008.

“Yes of course we welcome today’s news,” said RHA Chief Executive Roger King. “It is encouraging to know that we have a Chancellor who has listened to what we have to say. However, this deferment is essentially a short term fix. Ours is an industry that is now in desperate need of a long term solution, not just a deferment of a fuel duty increase in October 2008 and another proposed 1.84 pence per litre in April 2009.

The price of fuel continues to rise on what seems to be a daily basis and the costs for the UK haulage industry rise in line with each increase.

We have heard of incentives for motorists to save their motoring costs with vehicle excise duty levels being reduced for vehicles with low carbon emissions. UK hauliers are already operating the cleanest vehicles in Europe.

We STILL await a view from the Chancellor on how UK hauliers can meet foreign competition, fuelled with diesel that is at least 26 ppl cheaper. This is distorting the marketplace, is unfair and remains unacceptable.

This was billed as a budget for stability fairness and opportunity for everyone in Britain. But we have seen no fairness for hauliers in dealing with foreign competition. Our campaign to stop further fuel duty increases will continue.”

The Freight Transport Association says that the Chancellor’s decision to defer the 2p per litre increase in fuel duty until 1 October is very welcome, bearing in mind this week’s increase in the price of oil to $110 per barrel and forecasts that it will rise further. However, FTA says that any duty increase should have been put off for at least a year whilst the market remains so turbulent.

The FTA says that a six month deferment will save industry some £140 million. However, since January 2007 the transport industry has suffered fuel price increases of £2.5 billion as the bulk price of diesel has increased from 74p per litre to the current 92p per litre.

FTA Director of External Affairs said, “The high price of fuel impacts on not just the transport industry but the whole of UK industry as world prices go through the roof. In turn these increased prices must be passed to consumers. For the Chancellor to have added to this pain by seeking further taxation would have been unthinkable.

“But as the price of oil continues to rise, he must continue to keep his foot off the fuel duty accelerator – the proposed half pence per litre above inflation increase from 2010 can be no more than speculative. The FTA will seek a further deferment after 1 October.”

The FTA continues to call for a decoupling of the way fuel is taxed on commercial vehicles from cars.