The government’s plan to introduce 12 road tax (VED) bands instead of six is sensible, but the price of taxing a car in each band appears to have been generated at random.
The changes in road tax (technically known as Vehicle Excise Duty or VED) are intended to persuade consumers to buy less polluting cars, by making road tax progressively more expensive for higher polluting models. However, looking at the price jumps from one band to the next (the fourth column in the table) shows there is absolutely no consistent pattern to the increases – especially when EU emissions targets are taken into account.
|
VED Band
|
CO2g/km
|
VED cost p.a. £
|
Increase from previous band £
|
Market share 2007%
|
|
|
|
|
|
|
|
Band A
|
up to 100
|
0
|
0
|
0.01%
|
|
Band B
|
101 - 110
|
20
|
20
|
2.33%
|
|
Band C
|
111 - 120
|
35
|
15
|
3.09%
|
|
Band D
|
121 - 130
|
95
|
60
|
4.97%
|
|
Band E
|
131 - 140
|
115
|
20
|
14.34%
|
|
Band F
|
141 - 150
|
125
|
10
|
14.96%
|
|
Band G
|
151 - 160
|
155
|
30
|
17.20%
|
|
Band H
|
161 - 170
|
180
|
25
|
10.20%
|
|
Band I
|
171 - 180
|
210
|
30
|
10.21%
|
|
Band J
|
181 - 200
|
270
|
60
|
10.75%
|
|
Band K
|
201 - 225
|
310
|
40
|
5.64%
|
|
Band L
|
226 - 255
|
430
|
120
|
2.88%
|
|
Band M
|
256 plus
|
455
|
25
|
3.42%
|
Proportionately, the biggest tax increase is the £60 from Band C to D – yet Band D is exactly where the EU says most cars should be (the EU proposal is for an average of 130g/km for all cars by 2012). For the most polluting cars (Band M), there is only an additional £25 penalty, so a Porsche Cayenne Turbo with 358 g/km of CO2 will pay only fractionally more than a Band L Renault Espace 2.0 T Auto emitting 234 g/km of CO2.
The root of the problem seems to be that the budget makes the first year road tax highly variable – up to £950 for a Band M car. The assumption is that the first year road tax bill, which is different from the VED charged in subsequent years, will influence which cars are bought. Unfortunately for the government, its thinking is wrong-headed - the first year road tax bill is the one that matters least. Most new cars are bought with company money and the cost of the road tax is a negligible proportion of the overall cost – even £950 on the price of a £54,000 Range Rover V8 petrol is neither here nor there.
Most new car buyers are not paying for the price of the car - they are paying for the depreciation between the new price of the car and the value of it when they come to resell it. The most effective way of reducing sales of high-polluting vehicles would be to increase their rate of depreciation. £950 road tax on a five-year old Range Rover is a serious proportion of its value and would paradoxically have a much bigger impact on new car buyers as they would be faced with a far bigger loss of value.
While Clean Green cars can see the sense of placing a significant disincentive to buy cars that exceed the EU’s 2012 130g/km average target, the disincentive has been applied to the wrong band, and there appears little consistency in the scale of the steps from this point upwards. And there is still no grading between 256g/km and the worst CO2 producer which currently produces 495g/km.
This research is from Clean Green Cars