MPs Committee says proposed car tax changes are not unfair
Tue 05 August 2008
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The House of Commons Environmental Audit Committee (EAC) says that there is "nothing intrinsically unfair or unusual" about setting new Vehicle Excise Duty (VED) rates for cars that have already been purchased. The Committee also welcomes the additional first-year tax which has come to be known as 'showroom tax' and intended to influence car buyers decisions at purchase. However, the EAC says that the reforms are not sufficiently ambitious and won't cut CO2 emissions from road transport as much as is needed.
The Committee does acknowledge, however, that there are concerns over the impacts of the tax changes on lower income households. A minority statement from some members of the Committee calls for further review of the impacts of the tax changes before they are implemented.
The full Committee report is critical of the way the Treasury has communicated details and objectives of the VED changes and reccommends that it should pay more attention to its communications about the environmental purposes of tax changes in future. The Committee favours using green tax revenues for environmental purposes, saying that a failure to explain the rational behind green taxes breeds suspicion that the Government is using them as a means to raise revenue rather than to encourage a change in behaviour.
This year's Budget announced that VED rates will rise for existing cars with higher emissions registered since 2001. Much critical attention has since focused on the 1.1 million high carbon cars, registered between 2001 and 2006, that will see their VED rates increase, from £210 to £430 or more.
The EAC notes that according to the Treasury's own projections, the changes being made to VED in total will have only very limited environmental benefit. It calls on the Treasury to consider a more ambitious reform of VED and argues this might enable the government to offer bigger tax discounts for low emissions vehicles, as well as leading to higher carbon savings.
The Committee also proposes that Treasury should consider offering drivers of high carbon-emitting cars a payment to trade in their vehicles for more efficient, newer models.
The EAC Chairman, Tim Yeo, said: "The changes to car tax announced in the Budget are a step in the right direction. Raising the rates on high emissions cars that are already on the road could encourage sales of more efficient models in the second-hand market. Meanwhile, the first-year rates being introduced for new cars will create a kind of 'showroom tax', that could be used to influence buyers of new cars to choose the most efficient model in each class.
"However, the differentials between high and low carbon cars are still nothing like wide enough to make a big impact in practice. According to the government's own figures, these changes will only have a very limited impact on the environment. The Treasury must be more ambitious, matching increased charges on high carbon cars with discounts or rebates on low emissions vehicles."
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