Car tax revenue 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. The increase in revenue is attributed 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 due to higher duty rates and the end of VED exemption for EVs in 2025, which will result in over one million battery car owners paying annual tax for the first time.

The OBR has significantly revised its forecast for VED revenue, increasing it by £400 million per year. By 2028-29, the Treasury is expected to earn £10.4 billion from car taxation alone. The increase in revenue is also attributed to the Zero Emission Vehicle mandate (ZEV), which will be introduced next year and set binding targets for EV sales. Failure to meet these targets will result in fines. The OBR has used the ZEV mandate as a roadmap to estimate the increase in VED revenue.

There are concerns about the impact of these changes on existing and new EV owners. 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 be charged £180 per year. Buyers of brand new EVs will face an additional charge of up to £570 per year for the first five years. Motoring organization, the AA, has called for a tiered approach to VED, where EVs pay a lower rate to encourage their adoption.

There are also uncertainties about fuel duty. The OBR has made changes to its forecasts for fuel duty income based on a slowdown in EV uptake. With the ban on sales of new petrol and diesel cars pushed back by five years, the OBR expects fuel duty revenue to fall by £700 million in the current term. However, it predicts a 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 are concerns about the impact of these changes on pump prices. Currently, taxation makes up over half of the cost of every litre of fuel. Luke Bosdet, the AA's fuel price expert, warns that pump prices remain high and could put a strain on UK drivers, families, and businesses. The RAC Foundation believes it is unlikely that the Chancellor will both remove the 5p duty cut and increase fuel duty with a general election approaching.

FutureCar Staff