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Report says new car tax rates for second-hand cars is fair

In a report out today, Vehicle Excise Duty as an environmental tax, the Environmental Audit Committee concludes there is nothing intrinsically unfair or unusual about setting new VED rates for cars that have already been purchased.

In this year’s budget it was announced that VED rates are to rise for existing cars with higher emissions registered since 2001. Attention has since focused on the 1.1 million high carbon cars, registered between 2001 and 2006, that will see their VED more than double, from £210 to £430 or more.

The Committee suggests it makes sense to reband existing cars, since this could influence buyers of second-hand cars to choose models with lower emissions. This is especially important given that three-quarters of all car sales are second-hand.

However, the Committee acknowledges that there are real concerns over the financial effects of raising car tax on existing vehicles owned by lower income households—although it notes there is a lack of hard evidence on how many will be disadvantaged by these changes.

The Committee also welcomes the fact that some disabled drivers are already exempt from paying VED, but says the Treasury must look at extending this to all disabled drivers.

The Committee also suggests that a “car scrappage scheme” should be considered by the Treasury to offer drivers of high emissions cars a payment to trade in their vehicles for more efficient models.

The Committee is critical of the way the Treasury presented these changes to VED at the time of the Budget. The Committee recommends the Treasury pays far more attention to communicating the details and objectives of VED—and other environmental taxes—in the future. The Committee is also disappointed that the Treasury had not calculated what the impacts of the Budget will be on emissions from second-hand cars, when this was one of the main objectives of the changes.

Another of the major changes announced in the Budget is a series of new first-year rates of VED—higher than standard rates for high emissions cars, lower for low emissions cars. Welcoming these first-year rates, the Committee notes that significant cuts in emissions could be made extremely rapidly if buyers could be persuaded to choose the most efficient models in each class. However, the Committee remains concerned that the differentials between the new VED bands are still not large enough to have sufficient effect on purchasing decisions.

According to the Treasury’s own projections, the changes being made to VED in total will have only very limited environmental benefit. The Committee calls on the Treasury to examine the case for a more ambitious reform of VED. It argues this might enable the Government to offer bigger tax discounts for low emissions vehicles, as well as leading to higher carbon savings. The Committee also calls for the Government to accelerate the development of new vehicle technology, improve public transport, and encourage car-sharing schemes.

Chairman of the Committee, Tim Yeo MP, said: “The changes to car tax announced in the Budget are a step in the right direction. Raising the rates on high emissions cars that are already on the road could encourage sales of more efficient models in the second-hand market. Meanwhile, the first-year rates being introduced for new cars will create a kind of ‘showroom tax’, that could be used to influence buyers of new cars to choose the most efficient model in each class.

“However, the differentials between high and low carbon cars are still nothing like wide enough to make a big impact in practice. According to the Government’s own figures, these changes will only have a very limited impact on the environment. The Treasury must be more ambitious, matching increased charges on high carbon cars with discounts or rebates on low emissions vehicles.

“The Treasury must also urgently work to ensure these changes are not unfair to vulnerable groups. This includes looking at paying people to trade in their existing high emissions cars for more efficient models, and reviewing whether all disabled drivers could be exempted from paying car tax.

“In all, the Treasury must do far better in communicating the details and benefits of its green tax policies. Making revenue neutral-tax changes, or explicitly hypothecating some of the revenue raised from green taxes towards spending on the environment, would be more effective environmentally and more acceptable to the public. A failure to advertise green tax details to the public, or explain them in a timely manner to Parliament, breeds suspicion about their objectives, increasing the perception of them as revenue-raising measures with no environmental purpose.”