U.K. Automakers Leery of Government Tax-Reform Plan

The U.K. government announces a new-vehicle excise duty (VED) banding system for cars registered from April 1, 2017, with first-year rates varying according to the vehicle’s carbon-dioxide emissions.

Under the changes, announced in Chancellor George Osborne’s summer budget, there will be a flat standard rate of £140 ($215) for all cars for subsequent years, except those emitting 0 g/km of CO2, for which the standard rate will be zero.

Cars, including zero-emissions cars, with a list price above £40,000 ($61,400) will be subject to a £310 ($475) annual supplement for the first five years in which the standard rate is paid.

Osborne says the new tax system will make it fairer and sustainable. “Electric cars won’t pay any road tax at all and the most expensive cars will pay more,” he says in a statement.

“Existing cars won’t be affected – no one will pay more for a car that they already own. The money brought in from road tax in England will be spent on England’s roads from 2020.”

The changes have the Society of Motor Manufacturers and Traders concerned.

SMMT CEO Mike Hawes says the current VED system needs to be reformed, but the budget announcement on the regime comes as a surprise and is of considerable concern.

“While we are pleased that zero-emission cars will, on the whole, remain exempt from VED, the new regime will disincentivize take-up of low-emission vehicles,” Hawes says in a statement.

New technologies such as plug-in hybrids, the fastest growing ultra-low-emissions vehicle segment, will not benefit from longterm VED incentives, he says, threatening the ability of the U.K. and its automotive sector to meet ever-stricter CO2 targets.

“The introduction of a surcharge on premium cars also risks undermining growth in U.K. manufacturing and exports,” Hawes says. “British-built premium cars are in increasing demand at home and globally, and the industry helps to support almost 800,000 jobs in the U.K. Leveling a punitive tax on these vehicles will almost certainly impact domestic demand.”

However, the British Vehicle Rental and Leasing Assn. gives a cautious welcome to the budget, which includes a further freeze on fuel duty.

CEO Gerry Keaney says motorists and businesses will benefit from this continued freeze, but there now is a compelling case for the government to go one step further and cut the fuel duty.

The decision to introduce new VED bands from 2017 for newly registered cars will help protect government revenues, which had been falling alongside average emissions. Osborne promises overall VED revenues will remain at current levels.

“Although we welcome the commitment to maintain current VED revenues and invest the income on roads in the future, we are concerned that the existence of two different VED bandings from 2017 could create extra complexity and cost for the fleet market,” Keaney says in a statement.

“The new 2017 bandings also represent a policy shift away from the tax being based solely on tailpipe emissions, with vehicles costing more than £40,000 facing an extra annual £310 surcharge for the first five years.

“Many ultra-low-emission hybrid vehicles could fall into this category, which might put prospective customers off,” Keaney says.