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Impacts of the Budget on Green Cars

Although the headlines of today’s emergency Budget statement are about the public sector and benefits, for motorists the key outcome is that there are no significant changes to the plans of the previous government, so here’s a summary of what’s coming.

The statement confirmed a number of changes that were announced in the last Government’s spring 2010 Budget. These include changes to company car tax and fuel duty increases.

The Chancellor said that the Government would reform company tax so that it continued to provide an incentive to businesses purchase the lowest emitting vehicles on the market; as a result, the coalition Government intends to press ahead with the company car benefit-in-kind tax threshold changes that it inherited from the previous administration. Discounts on higher-emitting hybrid cars and alternatively fuelled company cars will be abolished on April 6, 2011.

Below are the key measures impacting on the fleet and motor industry.

Value Added Tax

As widely anticipated, the Government will increase the standard rate of Value Added Tax (VAT) to 20% from 17.5% from January 4, 2011. The Society of Motor Manufacturers and Traders has calculated that the move will add around £300 to the price of the average new car.

It can be expected that new vehicle registrations will be higher than previously expected in the final months of 2010 as fleets and private motorists look to beat the January 4, 2011 2.5% increase in VAT.

Fuel duty

The Chancellor said that there would be no new increases in fuel duties over and above those already announced by the previous administration in the March 2010 Budget.

Therefore, there will be a 1p a litre rise in duty on October 1 and a further 0.76p a litre rise on January 1, 2011.

The Chancellor also reiterated that fuel duty would increase by 1p a litre above inflation in 2011/12, 2012/13, 2013/14 and 2014/15.

Meanwhile, the Chancellor has asked the Office for Budget Responsibility to undertake an assessment over the summer of the effect of oil price fluctuations on the public finances. Informed by this assessment, the Government will examine options for the design of what it calls a ‘fair fuel stabiliser’.

The introduction of the stabiliser in a bid to keep pump prices in check was one of the election pledges of the Conservative Party.

In their manifesto the Tories said that the stabiliser would ensure that when oil prices went up, tax on fuel would reduce; and when oil prices dropped, taxes would rise. It is claimed that such a policy would keep prices at the pumps more consistent and would ensure that families, businesses and the whole British economy were less exposed to volatile oil markets, and that there was a more stable environment for low carbon investment.

In addition, reflecting the coalition Government’s commitment to investigate measures to help with fuel costs in remote rural areas, the Government is considering the case for introducing a fuel duty discount in remote rural areas. This includes possible pilot schemes in Scotland.

Company car tax

The Chancellor said that the Government would reform company tax so that it continued to provide an incentive to businesses purchasing the lowest emitting vehicles on the market.

As a result, the coalition Government intends to press ahead with the company car benefit-in-kind tax threshold changes that it inherited from the previous administration.

From April 2011, the basic threshold for the 15% band of company car tax will therefore be reduced by 5 g/km of CO2, so that the band applies to cars emitting between 121 and 129 g/km. The percentage of list price subject to tax will then continue to increase by one percentage point with every 5 g/km increase in emissions, to a maximum of 35% (see table below).

The £80,000 cap on car list prices used to calculate the taxable benefit arising from company cars will also be abolished on April 6, 2011, as will discounts on higher-emitting hybrid cars and alternatively fuelled company cars.

From April 2012, the 10% band for cars emitting 120 g/km of CO2 or less will be removed, as already announced, and the benefit-in-kind tax system of bands will be extended so that they increase by one percentage point with every 5 g/km of CO2 increase in emissions, from 10%. The 10% band will apply to cars that emit 99 g/km of CO2 or less.

Capital allowances

A reduction in the main rate of capital allowances on plant and machinery, which includes vans and cars, from 20% to18%, and the special rate from 10% to 8% from April 2012.

Capital allowances for zero-carbon goods vehicles

The Chancellor confirmed that legislation would be in the Finance Bill in the autumn for an enhanced capital allowance for zero-carbon goods vehicles. It will apply to vehicles purchased from April 2010, and will be in place for five years as announced by the previous administration in the March 2010 Budget.

Green Investment Bank

The Government says it is determined to address barriers to investment in a low-carbon economy. Therefore, following the annual Spending Review, the results of which will be announced on October 20, the Government will put forward detailed proposals on the creation of a Green Investment Bank to help the UK meet the low-carbon investment challenge.

The Government says it is considering a wide range of options for the scope and structure of the Bank. The options will be evaluated for effectiveness, fiscal affordability and transparency.

The SMMT has welcomed today’s Budget for the long-term clarity and stability it gives to UK manufacturing through clear measures to re-balance the economy and place greater importance on the private sector and industries, like automotive, to drive growth, investment and exports. However the organisation recognises that these will continue to be challenging times for the economy as the UK emerges cautiously from recession.

Keywords: 2010 emergency Budget statement