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Here are the reasons why diesel car sales were down 37% in March 2018 compared to March 2017 – and why similar reasons are also discouraging the purchase of electric cars.
There has been lots of confusion in the media and seemingly in government about diesels. Here’s the outcome on diesel car sales.
From 6 April, the start of the 2018/19 tax year, the following increases in company car benefit in kind tax are coming into effect:
So the lowest emission cars have the largest increase in company car benefit-in-kind tax.
In addition to this, the current company car benefit in kind tax diesel supplement also increases from 3% to 4% at the same time. As a result, employees driving diesel cars will experience a 3% tax hike in total.
This means that the government is adding a 3% tax increase to the newest diesel cars that are the cleanest in terms of emissions such as particulates and NOx that impact on local air quality. By doing this, the government is discouraging people who drive high mileages to buy a diesel car, which is likely to increase CO2 emissions, as well as fuel use and cost, if they opt as a result for a petrol car, or a plug-in petrol hybrid (depending on the use of the car), which has hindered diesel car sales.
Also, in the most recent Budget, the Chancellor announced a new Vehicle Excise Duty supplement on all new diesel cars from 1 April 2018, resulting in the First Year Rate of Vehicle Excise Duty jumping to the band above, apart from models that meet an emissions standard – the Real Driving Emissions Step 2 – that isn’t even in place yet. This Budget announcement, which could add up to £500 on to the first-year VED rate for diesel drivers, may encourage drivers to keep older, potentially dirtier diesel cars. Or scare people into switching from diesel to other fuels or powertrains that may not give them such high levels of fuel economy or such low levels of CO2 emissions in real-world driving.
Sales of ‘Alternatively-fuelled vehicles’ (AFVs) were only up by 5.7% in March 2018 (according to the latest SMMT figures). Why? In addition to discouraging the purchase of the latest, cleanest diesel cars, tax measures have also been introduced to also discourage the purchase of pure electric cars. Company car benefit in kind tax on cars with emissions of 0-50g/km of CO2 (ie. primarily pure electric vehicles) has just risen from 9% in 2017/18 to 13% in 2018/19 and will rise to 16% in 2019/20, before reducing to 2% (depending on electric mileage range) in 2020/21. This discourages company car drivers to buy an ultra-low emission vehicle until April 2020.
And then there’s the issue of plug-in hybrids. Although the sales figures haven’t been impacted yet (plug-in hybrid car sales were up 18% in March 2018), many plug-in hybrids are actually being withdrawn from sale due to concerns over their WLTP economy and emissions figures. The new WLTP economy test, which replaces the NEDC test, and is conducted over a longer, and faster, 14.5 mile cycle, will provide more accurate real-world fuel economy figures for all cars, but especially plug-in hybrids. Expect the WLTP economy figure for plug-in hybrids to drop substantially. This will also have an impact on tax rates in due course.
There is no information about company car benefit in kind tax thresholds beyond 2020 due to uncertainty about the impact of the new WLTP fuel economy and emissions test.
What about petrol? There haven’t been many changes to the taxing of petrol cars, so perhaps no surprise that petrol car sales held steady at 0.5% in March 2018 unlike diesel car sales.
Paul Clarke
