Car tax revenue boost for Treasury.

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【Summary】Car tax, also known as Vehicle Excise Duty (VED), is predicted to generate an additional £2.4 billion per year for the UK Treasury by 2028-29. This increase in revenue is expected due to higher duty rates and the end of VED exemption for electric vehicles (EVs) in 2025. With over one million EVs on the road by 2025, the Office for Budget Responsibility (OBR) has significantly raised its forecast for VED revenue.

FutureCar Staff Nov 24, 2023 8:14 AM PT

Vehicle Excise Duty, also known as car tax, is projected to generate an additional £2.4 billion per year for the Treasury by 2028-29. This increase in revenue is expected to be driven by the taxation of electric vehicles (EVs). The Office for Budget Responsibility (OBR) forecasts that VED tax receipts will rise from £8 billion in the current financial year to £10.4 billion in five years' time. This is due to higher duty rates and the end of VED exemption for EVs in 2025.

The OBR has significantly revised its forecast for VED revenue, predicting a rise of £400 million per year. By 2028-29, car tax receipts are expected to reach £10.4 billion. The increase in revenue is attributed to the growing number of EVs on the road, with the UK expected to have its one millionth EV by February. The OBR also factors in the forthcoming Zero Emission Vehicle mandate, which will set targets for EV sales.

In addition to VED, there are questions about the future of fuel duty. The OBR has made changes to its forecasts for fuel duty income, taking into account the slower uptake of EVs and the delay in the ban on sales of new petrol and diesel cars. The OBR predicts a fall in revenue from fuel duty, from £24.4 million in the current term to £28.2 billion in 2024-25. However, the future of fuel duty remains uncertain, and there are calls for it to remain frozen.

The changes to VED and fuel duty have implications for existing and new EV owners. Existing owners of older electric cars will be required to pay £20 per year in VED, while owners of recently-bought EVs will face an annual charge of £180. Buyers of brand new EVs from April 2025 will be subject to an additional charge of £390 per year for five years if the vehicle costs over £40,000. These changes have led to discussions about the fairness of taxing EVs in the same way as conventional cars and calls for a tiered approach.

The future of car taxation and fuel duty remains uncertain, with potential impacts on EV owners and the wider motoring industry.