The Government is wielding the taxation stick like never before in order to push car buyers away from larger-engined and higher emission new cars.

By hitting motorists’ pockets, it wants to shift the key factors in choosing a car from size, style and comfort to affordability and efficiency.

Measures announced in last month’s Budget are set to double the annual road tax bill of cars with CO2 emissions above 225g/km by the end of the decade.

And all cars emitting between 166g/km and 225g/km will also receive significant increases.

But many in the motor retail industry believe the impact will not be felt most in the new car showroom; the biggest impact will be on used cars.

The changes to vehicle excise duty (VED) are retrospective.

They affect all cars registered since March 2001, and will put an extra cost burden on those vehicles’ present owners.

The premium saloon and SUV segments, which are where higher emissions are generally found, stands to be most affected. At least, that’s the theory.

VED for the most polluting vehicles registered between 2001 and 2006 is set to rise by 110%. And a so-called ‘showroom tax’ – an elevated VED for the first year of registration – is expected to direct new car buyers towards lower emitting models.

However, in practice the changes may do little to deter the wealthy customers who choose these vehicles.

At present, sales of vehicles in the two highest emissions bands account for 20% of the new car market.

Chris Willows, corporate communications director at BMW UK, said he expects new car sales to be largely unaffected by the extra tax.

“Ultimately, if a customer is spending £40,000 on a new X5 then having to pay another few hundred pounds in tax at purchase is not going to be a major concern.”

 

  • Buyers may think twice

    Where Willows can imagine an impact is in the used market, particularly when the vehicle is under third ownership.

    Here, paying £440 per year for road tax will add a substantial percentage onto the vehicle’s cost. Once added to annual fuel bills and servicing costs, the financial demands of ownership are likely to make potential buyers think twice about whether they can find a more affordable vehicle.

    Mark Norman, of residual value experts CAP, expects little immediate impact but predicts that in the future the VED costs may come close to writing off the value of many medium-age low value cars, which are currently the much-needed transport of lower-income families.

    “The impact will be felt hardest by the typical driver of larger family cars of medium age and especially those with automatics because they tend to be slightly less fuel efficient and therefore produce more carbon dioxide.

    “Many of these cars will be worth around £2,000 to £2,500 in the trade, and the cost of a tax disc will be around 15 to 20% of the car’s entire value.

    "That will inevitably reduce their value substantially and therefore existing owners face the double whammy of bigger tax and a lower re-sale value,” added Norman.

    In the used car market, automatic variants of larger-engined cars up to seven years old may end up stuck on dealers’ forecourts as customers steer clear because of the high running costs.

    Certain variants which are already a hard sell could become impossible to shift profitably.

    Norman cites as an example a 2001 Vauxhall Omega 2.2CDX. With average mileage it is worth around £1,500, but with the VED changes it will cost £415 annually to tax from 2009. Such costs leave it destined for the scrapheap.

    However, the alternatives will become more attractive, leading to consumers downsizing their engine preferences.

    One issue may be that residual values of some cars may even improve.

    Diesel registrations were considerably fewer in the early part of the decade before company car tax became linked to CO2 emissions, so in the budget price older car segment there may be improved demand for older diesels which will be cheaper to tax than their petrol equivalents.

     

  • Vital knowledge

    Norman says: “If dealers have not got CO2 emissions down as being an important part of their buying process they should make it so.

    “With these changes it has become vital knowledge for dealers. They need to be aware of CO2 implications, because you can bet the public is going to be fully aware of it.”

    It’s a view shared by Adrian Rushmore, managing editor at EurotaxGlass’s.

    #AM_ART_SPLIT# He says: “Such a sharp rise in VED could have implications for the used car market in the coming months and years, but much will depend on customers’ understanding of the change.

    “We have seen a widening differential in used values between high and low polluters in the last two years, in particular because of increases in fuel costs.

    "The latest rises in VED will increasingly be viewed as an integral part of overall rises in motoring costs for high polluting cars, putting their values further under pressure.”

    Dealers’ actions will have little impact on RVs, says EurotaxGlass’s chief car editor Jeff Paterson.

    Factors such as legislation, seasonal demand, model replacement cycles and product attractiveness are out of their hands.

    If a franchise intends to push cars into the market, discount prices and distress residuals, the dealers have little choice if they hope to earn their volume bonuses.

    Vehicles which may take a hit in the used market include Kia Sorento 2.5 CRDi auto, SsangYong Rexton II, Rodius and Kyron, Audi A6 Avant quattro, Renault Grand Espace 3.0DCi auto, Mitsubishi Shogun and Citroën C6 2.7 HDi.

    These will be subject to either £415 (226-255g/km) or £440 (256g/km or higher) annual VED bills.

    Even now, owners face paying £385 for road tax, a £100 increase over the 2007 fee.

    The £210 annual VED for band F will affect the values of petrol-powered variants of numerous medium and large family cars and MPVs

    They include Chevrolet Tacuma and Lacetti, Citroën Xsara Picasso and C8 MPVs, Daihatsu Terios, Fiat Multipla, Hyundai Tucson, Kia Carens, Mazda5, Renault Grand Scenic, Renault Grand Espace and Seat Alhambra.

    Parker’s pick of the best and worst RV performers

    New cars that will lose most value over the next five years:

    Smart ForTwo Cabriolet Brabus Costliest city car for depreciation
    Mini Clubman Cooper S auto with Chili Pack
    Costing £20,000 new can only mean a big loss.
    Vauxhall Vectra 3.0V6 DCTi Elite auto
    Expensive, could lose £23,000 after five years.
    Land Rover Freelander 3.2 i6 HST auto
    Expected to retain just £8,000 of its £35,000 list price.
    Mercedes-Benz Viano 2.6V6 X-Clusive LWB auto
    This could lose £30,000.
    Porsche Cayenne Turbo 540 Will lose £60,000 of its £85,000 list price.

     

  • New cars that will best hold their value over the next five years:

    Hyundai i10 1.1 Classic Keen list price and good equipment equals an appealing used buy.
    Daihatsu Sirion 1.0S Good value, roomy and economical.
    Kia Cee’d 1.4SR SR edition will minimise cash loss at re-sale.
    Mazda6 1.8S Tight on losses, generously sized and great quality.
    Jeep Patriot 2.4 Sport Low-priced, frugal and minimal depreciation.
    VW Caddy Maxi Life 1.9TDI Competitive pricing, low volume and practicality serve it well.
    BMW 318ES A great all-round performer and depreciates slower than its rivals
    BMW X6 3.0d Soon-to-be-launched X6 will be in great demand as a used car.

     

     

  • Cars registered in 2003 that have best held their value:

    Perodua Kelisa EX So cheap and practical shape it’s desirable.
    Mini One Desirable for years to come with the right options.
    Seat Leon 1.4S Original Leon offers Volkswagen quality at a bargain price.
    Mazda6 1.8S Entry model was great value.
    Honda CR-V 2.0SE Keen demand for petrol versions.
    Toyota Celica 1.8VVTi Strong appeal due to looks, reliability and practicality.
    Volvo V70 D5 S Capable, well-equipped estate.
    Lexus RX300 Keen pricing and healthy demand.

    Vehicle excise duty – the costs

    VED Rates in 2009-10
    Band A (up to 100g/km CO2) no fee
    Band B (101-110g/km CO2)    £20
    Band C (111-120g/km CO2)   £30
    Band D (121-130g/km CO2)   £90
    Band E (131-140g/km CO2)   £110
    Band F (141- 150g/km CO2)   £120
    Band G (151 to 160g/km CO2) £150
    Band H (161 to 170g/km CO2) £175
    Band I (171 to 180g/km CO2) £205
    Band J (181 to 200g/km CO2) £260
    Band K (201 to 225g/km CO2) £300
    Band L (226 to 255g/km CO2) £415
    Band M (Over 255g/km CO2) £440

    VED Rates in 2010-11
    Band A (up to 100g/km CO2) no fee
    Band B (101-110g/km CO2) £20
    Band C (111-120g/km CO2) £35
    Band D (121-130g/km CO2) £95
    Band E (131-140g/km CO2) £115
    Band F (141- 150g/km CO2) £125
    Band G (151 to 160g/km CO2) £155
    Band H (161 to 170g/km CO2) £180
    Band I (171 to 180g/km CO2) £210
    Band J (181 to 200g/km CO2) £270
    Band K (201 to 225g/km CO2) £310
    Band L (226 to 255g/km CO2) £430
    Band M (Over 255g/km CO2) £455

    Below is the VED rates for new cars bought in 2010-11, the so-called ‘showroom tax’.

    First-year VED Rates in 2010-11
    Band A (up to 100g/km CO2) no fee
    Band B (101-110g/km CO2)   no fee
    Band C (111-120g/km CO2)   no fee
    Band D (121-130g/km CO2)   no fee
    Band E (131-140g/km CO2)   £115
    Band F (141- 150g/km CO2)   £125
    Band G (151 to 160g/km CO2) £155
    Band H (161 to 170g/km CO2) £250
    Band I (171 to 180g/km CO2)  £300
    Band J (181 to 200g/km CO2) £425
    Band K (201 to 225g/km CO2) £550
    Band L (226 to 255g/km CO2) £750
    Band M (Over 255g/km CO2) £950