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2008 Budget car tax changes under scrutiny

MPs have debated the Government’s controversial plans to increase Vehicle Excise Duty as the Finance Bill continues to make its way through Parliament.

The VED increases were announced in the March Budget and are due to come into effect in two phases – April next year and April 2010.

While the 2010 increases focus on a ‘showroom tax’ for new cars, the 2009 rises impact on cars bought since 2001.

The Conservatives claim next year’s increases will leave more than 2.3 million people paying up to twice as much in road tax – between £100 and £245 more.

Up to 50 Labour MPs have threatened to vote against the Government unless Chancellor of the Exchequer Alistair Darling changes his mind. HM Treasury argues that the majority of motorists will be no worse off as a result of the VED changes.

The Environmental Audit Committee (EAC) has made the inquiry into the changes made to VED rates. The EAC launched the inquiry to assess the role that VED can play in reducing carbon emissions from road transport. The committee also wanted to assess the acceptability of using VED in this way in the wider context of public attitudes towards green taxes.

The automotive industry supports an effective and stable framework for CO2 based taxes that encourage sustainable market transformation to lower emitting models across all vehicle types. The changes announced in Budget 2008 do not give clear signals as to their environmental effectiveness but substantially raise the costs for motorists.

SMMT does not believe the introduction of the first year rate of VED will have a positive impact on environmental performance or consumer behaviour. VED is a charge on ownership not on use, which undermines the principle of the tax. Average CO2 from new cars has fallen by 13% over the past decade in the UK and is set to continue falling with EU tailpipe CO2 regulation.

“SMMT recognises that VED is an important signal but it is not the main driver for change,” said Paul Everitt, SMMT chief executive. “We fear motorists will see the first year rate as a way of raising cash rather than reducing carbon.”

SMMT believes there should be a full and proper analysis of VED to measure its contribution in reducing emissions. It is important that government has a fair and proportionate view of VED and is transparent in its aims and approach. VED should not be used as another revenue raising exercise for government, and SMMT recommends a full consultation be carried out prior to decisions being made that will affect both the motorist and the industry.