Car tax revenue boost for Treasury

author: FutureCar Staff    

Vehicle Excise Duty, commonly known as car tax, is expected to generate an additional £2.4 billion per year for the Treasury by 2028-29. The increase in revenue is attributed to the taxation of electric vehicles (EVs). According to the Office for Budget Responsibility (OBR), VED tax receipts are projected to rise from £8 billion in the current financial year to £10.4 billion in five years. This is due to higher duty rates and the end of VED exemption for EVs in 2025, resulting in over one million battery car owners being subject to annual tax for the first time.

The OBR has revised its forecasts for car taxation revenue, with the focus on the impact of VED on EV owners. The committee predicts that VED will contribute significantly to the Treasury's tax receipt increases by the end of the decade. The OBR states that VED added £7.3 billion to the Treasury's coffers in the last financial year. This year, it is expected to increase by approximately £700 million following the recent rise in rates. However, there is an expectation for a significant acceleration in car tax receipts from 2025 onwards, as EV owners will no longer be exempt from taxation.

The OBR has adjusted its forecast for VED revenue, expecting a rise of £400 million per year due to increased rates and higher receipts from EVs. By 2028-29, the OBR predicts that the Treasury will generate £10.4 billion from car taxation alone. The forthcoming Zero Emission Vehicle mandate (ZEV) is also expected to contribute to the increase in VED earnings. The ZEV mandate will set binding targets for EV sales, with the aim of increasing EV uptake and reducing emissions.

Existing and new EV owners will be affected by the changes in VED. Owners of older electric cars registered before April 2017 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 will be subject to a 'showroom tax' of £10 for the first year, followed by the standard rate of £180 per year. Additionally, EVs priced above £40,000 will incur an Expensive Car Supplement of £390 per year for five years.

The future of fuel duty remains uncertain. 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 given consumers more time to purchase combustion-engine vehicles. The OBR anticipates a decrease in fuel duty receipts by £700 million in the current term. However, it expects a significant rise to £28.2 billion in 2024-25, taking into account the removal of the 5p-a-litre fuel duty cut and yearly increases in line with RPI inflation.

There is uncertainty surrounding the future of motoring taxes, with questions about fuel duty and the taxation of electric cars. Motoring organizations, such as the AA, have called for a tiered approach to VED, where EVs pay a lower rate of tax. The RAC Foundation believes it is unlikely that the Chancellor will revoke the 5p duty cut and increase the tax with a general election looming. The future of motoring taxes remains unclear, and consumers may delay purchasing electric cars until there is more clarity on costs and taxation.

FutureCar Staff