Car tax rises inevitable

Posted on July 4th, 2012 by Rob Marshall

Car tax rises inevitableConsidering that a low or zero Vehicle Exercise Duty (VED) rate has been used as a carrot, to dangle tantalisingly in front of new car buyers’ noses in recent years, I found it ironic that certain factions of the British public decided to lambaste comedian Jimmy Carr last month, for taking action in good faith to reduce his personal tax liability.

The truth is that many thousands of car buyers have done similarly, by purchasing supposed low-CO2 emitting cars. Unfortunately, the government strategy of encouraging such purchases with attractive VED rates, thus tapping into the public’s desire to contribute less to The Exchequer, appears to have backfired and it has been reported that the British government is confronting a shortfall in motor-sourced revenue.

Sadly, through my own personal experiences of interacting with new and used car buyers, the purchasing decision has less to do with environmentalism and more about saving money in reduced tax payments. Whether or not a new car is actually more ‘environmentally friendly’ than another one is almost an irrelevance. If it can pass the European laboratory-performed fuel consumption and emission tests, which have been criticised heavily for not being realistic in any case, then it could attract a ‘zero’ car tax band.

Additionally, the same people that chastised Jimmy Carr might also be the same people that celebrated the cancellation of August’s three-pence-per-litre fuel increase. While many people might argue that the British motorist contributes more than its fair share of tax, a popular argument remains that reduced income from VED and road fuel ‘has to be made up from somewhere’. At the time of writing, The Treasury could not provide a clear answer to this, which was made all the more evident by Chloe Smith’s embarrassing appearance on BBC2 TV’s Newsnight programme, broadcast on the 26th June.

At least The Treasury has confirmed that the VED reforms are being investigated. Several options are being considered; the first of which is the more likely move of increasing car tax disc rates above inflation across all emission bands, which would cause howls of protests not only from those people that bought a car in Bands A-C, with the intention of paying little VED or none at all, but also from families with larger vehicles that would be clobbered even further.

An alternative is replacing VED with a single lump payment made when the car is first registered (not dissimilar to the one-time Car Purchase Tax), which would reduce the significant administrative burden at the DVLA and render the annual Statutory Off Road Notification (SORN) redundant. Yet, I suspect that new car dealers would be less than enthusiastic. Whatever is decided, with more than eight of every ten vehicles being driven by business fleet users, VED and motor fuel increases are claimed quite justifiably to be harmful to British enterprise.

However, Fleet News magazine has commented that VED rises are unlikely to compensate for the shortfall in revenue and ministers may have to consider overhauling the entire system of generating and collecting motoring taxes, which could include ‘back-dooring’ the controversial road-user charging process but it is unlikely that the political will is strong enough for that vote loser at present. By proceeding with such a massive reform, what is certain is that the overall tax take from the motorist would increase, which would, ultimately, filter down to increased costs of living for everybody.

Unfortunately, the cost of the annual licence disc is likely to rise for almost every car and it is likely that owners of vehicles that may be exempt now may not be so in the future. Even so, the British motorist will continue to avoid contributing to the Treasury’s coffers, when the legitimate opportunity presents itself and, like Jimmy Carr, I cannot blame them for doing so.