Car tax revenue boost for Treasury

author: FutureCar Staff    

Vehicle Excise Duty, commonly known as car tax, is projected to generate an additional £2.4 billion per year for the Treasury by 2028-29. The increase in revenue is expected to come from 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, annual increases in line with inflation, and the end of VED exemption for EVs in 2025.

The OBR has significantly revised its forecast for VED revenue, with an increase of £400 million per year. By 2028-29, the Treasury is expected to make £10.4 billion from car taxation alone. The increase in revenue is attributed to the growing number of EVs on the road, with estimates suggesting that there will be at least 1.3 million taxable EVs by March 2025.

In addition to the increase in VED revenue, the forthcoming Zero Emission Vehicle mandate (ZEV) is also expected to contribute to the upward revisions. The ZEV mandate will set targets for EV sales, starting with 22% of all new models in 2024 being fully electric. Failure to meet these targets will result in fines, but manufacturers will have the option to buy EV credits from other brands. The ZEV mandate provides a roadmap for estimating the increase in revenue from VED in the coming years.

There is speculation about whether fuel duty will be increased in March. The OBR has made changes to its forecasts for fuel duty income based on a slowing uptake of EVs, which is partly due to the government's delay in banning the sale of new petrol and diesel cars. The OBR anticipates a fall in fuel duty receipts, but expects a rise in revenue from £24.4 million in the current term 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.

The AA and other motoring organizations are lobbying for fuel duty to remain frozen. They argue that pump prices are already high and increasing fuel duty would place a burden on drivers, families, and businesses. The uncertainty surrounding motoring taxes, including the potential introduction of a mileage-based charge for electric cars, may deter consumers from purchasing EVs until there is more clarity on the costs associated with going green.

FutureCar Staff