LowCVP Update: Budget 2007 - Chancellor doubles tax on high carbon vehicles
Wed 21 March 2007
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Amongst the eye catching announcements in the 2007 Budget was the anticipated rise in Vehicle Excise Duty (road tax) for the most polluting vehicles. Smaller changes to support the emerging biofuels industry and to support E85 flex-fuelled vehicles were also announced.
VED will rise to £400 by April 2008, almost doubling the current rate, for new vehicles in top Band G (>225g/km). Band A vehicles will continue to pay no VED, and the rate for Band B cars has been cut to £35. Cars in Band F will pay £10 more this year and £5 for each year after that. Rates for cars in bands C and E will increase by £5 a year for the next three years. In addition the VED rates for petrol and diesel are to be aligned – providing a small additional boost for diesel vehicles.
Following extensive lobbying by Saab, amongst others, the Chancellor has also announced a 2% company car tax discount will become applicable for bioethanol (E85) flex fuel vehicles from 2008.
The duty differential of 20ppl on biofuels will be extended to 2010, with the 40p a litre reduction for biogas extended to 2012 to provide a sound basis for the developing UK biofuels industry. The buy-out price for companies failing to achieve their Renewable Transport Fuels Obligation (RTFO) is retained at 15ppl in 2009/10. The LowCVP was commended for the progress being made on the development of reporting schemes within the Renewable Transport Fuels Obligation due for launch in April next year.
In support of technological innovation, Sir Nicholas Stern has been commissioned by the Chancellor to work with Professor Julia King of Aston University to examine the next generation of low and no carbon vehicles likely to be available over the next 25 years.
Other new measures announced in the statement were:
• Fuel duty rates will be increased by 2ppl but have been deferred until October 2007 and will be followed by a 2p rise in 2008 and a 1.8p rise in 2009
• Rebated oils will also see a duty increase from October of 2ppl
• HMRC to relax requirements for small biofuels producers to register and allows returns to be made quarterly
• The duty rate for off-road use of biofuels will be permanent reduced
• CNG duty differential, as dictated by the Alternative Fuels Framework, will be maintained whilst reducing LPG by 1ppl
• Proposal of an EU-US taskforce to allow for knowledge exchange in the area of biofuels
• EU State-aid will again be sought for 100% first year ECAs supporting the most efficient biofuels plants
SMMT blasted the amendments to VED as “gesture politics at its most cynical” and estimated the changes would deliver an extra £44.5m in revenue for the Treasury. 'The Chancellor and the green lobby may have convinced the public that this will affect rich drivers in central London,' said SMMT chief executive Christopher Macgowan. 'The truth is that many thousands of people across the UK who rely on larger-engined vehicles, like families, farmers and small business people, face another hike in motoring bills in the years to come.'
Transport 2000 said the Chancellor’s fuel duty increases and new top rate of Vehicle Excise Duty are steps in the right direction, but great strides are needed to increase peoples travel choices and tackle climate change. Stephen Joseph, Executive Director of Transport 2000, said: “The Chancellor has taken steps in the direction of tackling climate change, but great strides are needed. The rise in fuel duty is very welcome at a time when in real terms the cost of motoring is falling and the cost of public transport is increasing. However, we want to see the revenues ring fenced for public transport and other measures that will give people real travel choices, in line with the commitment the Chancellor made in the 2000 budget.
The full chapter on environmental issues addressed by Budget 2007 is available at the link to the right.
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