Car tax boost for Treasury

author: FutureCar Staff    

Vehicle Excise Duty, also known as car tax, is expected to generate an additional £2.4 billion per year for the Treasury by 2028-29. This increase in revenue is partly due to the taxation of electric vehicles (EVs). The Office for Budget Responsibility (OBR) predicts that VED tax receipts will rise from £8 billion in the current financial year to £10.4 billion in five years' time. This is a result of higher duty rates and the end of VED exemption for EVs in 2025. It is estimated that over one million battery cars will be subject to annual tax for the first time.

The OBR has significantly revised its forecast for VED revenue, expecting a rise of £400 million per year. By 2028-29, the Treasury is projected to make £10.4 billion from car taxation. The increase in revenue is also attributed to the forthcoming Zero Emission Vehicle mandate (ZEV), which will set targets for EV sales starting in 2024. Manufacturers failing to meet these targets will face fines, while those exceeding them can sell EV credits to other brands. The ZEV mandate provides a roadmap for estimating the increase in VED revenue.

There has been speculation about the potential increase in fuel duty. The OBR has made changes to its forecasts for fuel duty income based on a slower uptake of EVs. The delay in the ban on sales of new petrol and diesel cars has provided more time for consumers to buy combustion-engine vehicles. The OBR expects fuel duty revenue to fall by £700 million in the current term but rise to £28.2 billion in 2024-25. However, it is unclear whether fuel duty will be increased in March.

The AA has called for a tiered approach to taxing EVs, with lower rates for electric vehicles to encourage their adoption. The changes to VED will impact existing and new EV owners. Older electric cars registered before April 2017 will be moved to a higher VED band, while recently-bought EVs will be subject to the standard rate of VED. New EVs above £40,000 will also face an additional charge known as the Expensive Car Supplement. The AA has written to the government advocating for frozen fuel duty and clarity on future motoring taxes.

As the future of motoring taxes remains uncertain, there is concern among consumers and experts. The RAC Foundation believes it is unlikely for the Chancellor to both revoke the 5p duty cut and increase the tax with a general election approaching. The AA warns that pump prices for petrol and diesel remain high, and consumers need clarity on the costs associated with going green. It is expected that the Chancellor will need to announce a replacement system for lost fuel duty revenue in the future.

FutureCar Staff