Philip Hammond

Budget 2017: Philip Hammond announces diesel tax increase

Philip Hammond

Chancellor Philip Hammond has announced a series of tax changes for new diesel cars, which will see drivers pay more for the first year’s VED (vehicle excise duty).

“From April 2018, the first year VED rate for diesel cars that don’t meet the latest standards will go up by one band and the existing diesel supplement in company car tax will increase by one percentage point,” said Hammond. “Drivers buying a new car will be able to avoid this charge as soon as manufacturers bring forward the next generation of cleaner diesels that we all want to see.”

The vehicle excise duty (VED) supplement will apply to new diesel cars first registered from 1 April 2018, meaning their first-year rate will be calculated as if they were in the VED band above. This will not apply to next-generation clean diesels – those which are certified as meeting new real driving emissions step 2 (RDE2) standards.

The RAC says that diesel car buyers are being hit “relatively light” with the new tax rules announced in today’s budget.

“The chancellor has chosen to be relatively light touch when it comes to taxing new diesel cars,” said the RAC’s head of external affairs, Peter Williams.

“Any new diesel car registered from 1st April 2018 will be hit with a higher first year tax rate unless they conform to the latest real world driving standards. So current beleaguered owners of diesel cars can breathe a sigh of relief that they will not be punished further by the treasury – but they will need to keep their eyes on local authorities who may be introducing clean air zones in the near future.”

Hammond also confirmed that the measures would only apply to cars – so van drivers will not be hit by the measures. He also said that the money raised by the tax increase will go towards a £220 million clean air fund for local areas most effected by pollution.

Company car drivers will also be hit by a tax increase. A diesel supplement for benefit-in-kind tax will be increased from three percent to four percent from 6 April 2018.


Ahead of the budget announcement, speculation suggested that Hammond could increase fuel duty on diesel in a bid to discourage people from driving diesel vehicles. The RAC warned, however, that an increase in fuel duty would not have the desired effect.

“Putting up duty on diesel is not going to stop the country’s 12 million diesel motorists driving any less and ease the air quality problem associated with nitrogen dioxide emissions from the fuel,” said RAC fuel spokesman Simon Williams.

“While the Government may think it will further deter people from choosing a diesel as their next vehicle, in the meantime it would unfairly punish existing diesel owners for responding to incentives introduced by a previous Government designed to limit carbon dioxide emissions.”

The chancellor confirmed that he would continue the fuel duty freeze for both petrol and diesel, costing the Government £46 billion since 2010. This makes it the longest fuel duty freeze in a generation.

Vehicle leasing firm Leaseplan UK has suggested that the freeze in fuel duty is not enough to help UK motorists.

“We’re glad that the Chancellor has listened to motorists and the fleet industry, and decided to extend the freeze on Fuel Duty for another year,” said Leaseplan managing director, Matt Dyer. “However, even with a freeze, fuel prices are still rising. If this continues, the Chancellor should consider cutting Duty rates for the first time since 2011.”

£540 million investment in electric cars

£540 million investment in electric cars

Hammond also announced a new £400 million charging infrastructure fund in a bid to improve the UK’s electric car charging network and encourage the uptake of electric vehicles.

It comes as part of his autumn budget, announced today, which also includes an extra £100 million to go towards the plug-in car grant and £40 million in research and development of electric cars.

“There’s perhaps no technology as symbolic of the revolution gathering pace around us as driverless vehicles,” said Hammond.

“I know that Jeremy Clarkson doesn’t like them, but there are many other good reasons to pursue this technology – so today, we step up our support for it. Sorry Jeremy, but definitely not the first time you’ve been snubbed by Hammond and May.

“Our future vehicles will be driverless, but they’ll be electric first. And that’s a change that needs to come as soon as possible for our planet. So we’ll establish a new £400 million charging infrastructure fund, invest an extra £100 million in plug-in car grant and £40 million in charging R&D. And I can confirm today that we will clarify the law so that people who charge their own electric vehicles at work will not face a benefit-in-kind charge from next year.”

Electric vehicle charging firm Chargemaster has described the budget as “good news for the EV sector”.

“We welcome the continued incentives for electric car purchases through the Plug-in Car Grant,” said Chargemaster’s CEO, David Martell. “Of course, these incentives will not be needed indefinitely, and manufacturers predict that the cost of building an electric car will drop below the cost of producing a petrol or diesel car within the next five years. It is also worth pointing out that consumers can buy an electric car for as little as £5,000 in the used market.

“The £400m announced to support EV charging infrastructure is good news for charge point suppliers and operators such as Chargemaster, and we hope that some of this funding will be directed towards preparing network connections and reinforcing the electricity grid where required.”

>NEXT: Diesel fuel duty could go up – but it won’t reduce pollution

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