Government VED announcement receives widespread criticism

The Treasury suddenly announced on the 29 April 2008 that it was abolishing an existing VED exemption on higher road tax rates for vehicles emitting more than 225g of CO2 per kilometre registered between March 2001 and March 2006.

This has been widely seen as a completely unfair and desperate act by Gordon Brown to raise yet more money from defenceless motorists. Telling people in advance about forthcoming tax plans for new cars is one thing, but declaring without warning that cars that people bought years ago will now be subject to huge tax increases is disgraceful, and is likely to wipe huge value off many second hand cars for owners and dealers.

The government has received widespread criticism from many quarters. “The sudden removal of the Vehicle Excise Duty (VED) exemption for older vehicles will severely damage the market value of thousands of vehicles, which will be bad news for dealers and owners alike” according to Sue Robinson, director of the Retail Motor Industry Federation (RMI) National Franchised Dealers Association (NFDA).

The government stated that this was to encourage owners of these vehicles to replace them with newer, environmentally friendly models. However Robinson disputes the effectiveness of this measure: “The extra costs involved in running these older vehicles will make them extremely unattractive to potential buyers, thereby ruining trade-in values for dealers. At the same time, many motorists may feel that they are better off running these vehicles into the ground rather than lose money selling up. As a result the measure is unlikely to achieve any substantial reduction in CO2 levels.”

Robinson added: “The motorist has proved to be an easy target for additional taxation by the Treasury in recent years, and this latest development shows they intend to continue using it to raise additional revenue.”

CAP, which supplies the used car industry with data on residual values, said that many larger cars would be reduced to their scrap value because they would fall into one of the higher tax brackets being introduced for high-emission cars next April. They also say that many families will find that they cannot sell their cars even though they are in good working order and no more than seven years old.

A Hyundai Lantra 1.6GSI automatic, registered in 2001, is listed as having a trade value of £850. But its road tax will increase from £210 this year to £300 next year and £430 in 2010.

CAP estimated that the road tax increase would cut 20%, or £1,000, off the value of a 2001 Renault Espace 2LT Privilege people carrier.

Mark Norman, CAP’s development manager, said: “When people find out that it could cost half a car’s value just to tax it each year, its value will plummet. Many of these cars, particularly saloons, will be reduced to their scrap value. The sad thing is that perfectly usable cars will be scrapped, which could perversely increase overall CO2 because of the emissions from manufacturing new cars.”

He said that the changes to VED would hurt most those who were least able to afford it. Mr Norman said: “Poorer families who need a bigger car to transport children and luggage will find their car has lost up to £1,000 of its value. They face an impossible choice because many will struggle to pay the higher road tax but won’t be able to afford to buy a more fuel-efficient car with a lower road-tax rating.”

The new higher road tax will particularly penalise drivers who have fuel-hungry cars but do low mileage.

Adrian Rushmore, managing editor of Glass’s used car guide, said it would add to the impact that high fuel prices were having on residual values. He added: “Fuel costs have increased by 25 per cent since January last year and higher road tax will help accelerate the trend towards faster depreciation for less fuel efficient models. The motor trade needs to tell people thinking of buying one of these cars that they will face a big hike in road tax from next year. That may influence their decision.”

He said that fuel-hungry cars were depreciating faster than more efficient models. The average three-year-old car last month was worth £600 less than the average three-year-old car in April last year. But for cars with CO2 emissions of more than 225g/km, the difference was £2,000.

The changes have been branded ‘duplicitous’ by the Conservative Party. The changes had not been made clear in the March Budget announcement on far-reaching VED changes. The Daily Telegraph has estimated that approximately 1.2 million vehicle owners are hit by the decision.

Responding to the news that tens of thousands of families will have to pay up to £245 extra a year under the new rules – £210 in 2008 to £455 in 2010 for high emission vehicles – after the Government’s decision to include cars up to seven years old, Shadow Treasury Minister Justine Greening said: “This is duplicity from the Treasury who deliberately failed to make any mention of this tax grab at the time of the Budget.

“Last year, Gordon Brown promised not to backdate the CO2 charge on family cars to before 2006 and now he’s broken yet another promise by backdating it to 2001.

”This hits tens of thousands of drivers and the worst hit are low income families who simply can’t afford to change cars regularly. These are people driving family cars, often bought second hand, with 80,000 miles on the clock.

“Chancellor Alastair Darling said that the Budget would leave a typical family earning £28,000, with two children £130 a year better off, but many will be paying an extra £220 in extra VED because of these changes – so they’re losers too.

“For families who are coping with rising fuel bills and rising food bills, they now can add yet another Government stealth tax to their list of problems.”