Motorists set to pay £1 billion a year after 'stealth' insurance tax hike

Budget 2015 reaction: SMMT 'surprised' by new road tax bands

George Osborne

The Society of Motor Manufacturers and Traders (SMMT) has expressed surprise and concern about the new car tax bands announced by George Osborne during yesterday’s budget.

Under the new Vehicle Excise Duty (VED) bands, all cars with a list price of £40,000 will be subject to a £310 supplement on top of regular road tax for the first five years.

While zero-emission cars will still be taxed favourably, there will be no incentive to buy a low-emission or hybrid vehicle.

SMMT chief executive Mike Hawes said: “The Chancellor’s Budget announcement on the regime came 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 disincentivise take-up of low emission vehicles. New technologies such as plug-in hybrid, the fastest growing ultra low emission vehicle segment, will not benefit from long-term VED incentive, threatening the ability of the UK and the UK automotive sector to meet ever stricter CO2 targets.”

In a bid to prove the Conservatives are no longer the party of the rich, Osborne said the new tax bands won’t be applied to cars bought before 2017 – but those with a list price of more than £40,000 bought after 2017 will pay more.

This will affect British-built cars such as the Land Rover Discovery and high-spec models of the new Jaguar XE – and even efficient hybrids such as the Lexus RX450h.

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

Potholes warning sign

RAC welcomes new Roads Fund

A big change as part of Osborne’s budget is that ‘every penny’ raised through VED will go into a new fund for the maintenance of roads. The RAC has welcomed the move.

RAC chief engineer David Bizley said: “Today’s budget announcement on Vehicle Excise Duty marks a return to the days when road tax was collected and used to fund improvements in the road network. As new cars become more efficient, VED was always destined to bring in less and less money for the Treasury. For the first time, motorists will be able to see for themselves how the money they pay benefits the road network that they use – although it is a pity that we will have to wait five years for the Roads Fund to take effect.”

Road Surface Treatments Association demands more

The Road Surface Treatments Association (RSTA) has also welcomed the Roads Fund, but insisted more is needed.

RSTA chief executive Howard Robinson said: “For many years we have called for the monies raised from road taxation to be ring-fenced and used for the purposes that the road tax was set-up for.

“Road taxes raise some £6 billion a year whilst fuel duty raises a further £27 billion. More of this money should be invested into long-term road maintenance that addresses the £12 billion necessary to bring our road network up to a reasonable standard.”


Fuel duty freeze could result in nasty surprise

As part of yesterday’s budget, George Osborne also said he would be continuing to freeze fuel duty. The RAC has warned that this could result in a nasty surprise for motorists if it’s increased in 2016.

RAC chief engineer David Bizley said: “By freezing fuel duty for the rest of the year the Chancellor has continued his good record of helping to ease the travel and transport costs of individual motorists and businesses alike, but this sounds alarm bells for next year as by not extending the freeze further it potentially signals the country’s first increase in duty since 2011.

“While oil prices are expected to stay low, the oil market is notoriously hard to predict, so there is always the chance that fuel prices will be considerably higher by the time of the Budget in March 2016. Any increase in duty would therefore have a negative effect on the economy.”

Motoring journalist Quentin Willson has also spoken out as part of the Fair Fuel campaign. He said: “FairFuelUK is pleased that Mr Osborne is to continue to freeze fuel duty. Our 1.1m supporters will be somewhat happier that, whilst this tax still remains the highest in the EU, a freeze will help keep their high road transport costs somewhat lower than what was rumoured to be introduced in this Budget.

“Our recent empirical economic evidence sent to all MPs and the Treasury has made them realise that 40m UK drivers will not tolerate being used as that continual cash tax cow. The fight goes on for a cut!”

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