A "car scrappage scheme" should be considered by the Treasury to offer drivers of high emissions cars a payment to trade in their vehicles for more efficient models, says the Environmental Audit Committee.
In a report out today, the Committee concludes there is nothing intrinsically unfair or unusual about setting new VED rates for cars that have already been purchased.
In this year's budget it was announced that VED rates are to rise for existing cars with higher emissions registered since 2001. Attention has since focused on the 1.1 million high carbon cars, registered between 2001 and 2006, that will see their VED more than double, from £210 to £430 or more.
The Committee suggests it makes sense to reband existing cars, since this could influence buyers of second-hand cars to choose models with lower emissions. This is especially important given that three-quarters of all car sales are second-hand.
However, the Committee acknowledges that there are real concerns over the financial effects of raising car tax on existing vehicles owned by lower income households—although it notes there is a lack of hard evidence on how many will be disadvantaged by these changes.
The Committee also welcomes the fact that some disabled drivers are already exempt from paying VED, but says the Treasury must look at extending this to all disabled drivers.
The Committee is critical of the way the Treasury presented these changes to VED at the time of the Budget. The Committee recommends the Treasury pays far more attention to communicating the details and objectives of VED—and other environmental taxes—in the future.
The Committee is also disappointed that the Treasury had not calculated what the impacts of the Budget will be on emissions from second-hand cars, when this was one of the main objectives of the changes.
Another of the major changes announced in the Budget is a series of new first-year rates of VED—higher than standard rates for high emissions cars, lower for low emissions cars. The Committee remains concerned that the differentials between the new VED bands are still not large enough to have sufficient effect on purchasing decisions.
According to the Treasury's own projections, the changes being made to VED in total will have only very limited environmental benefit.
The Committee calls on the Treasury to examine the case for a more ambitious reform of VED. It argues this might enable the Government to offer bigger tax discounts for low emissions vehicles, as well as leading to higher carbon savings.