Government think-tank urges change on VED

By Tom Seymour
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4 October 2012

A Government think-tank, backed by the Liberal Democrats, is urging road tax changes to charge £50 for each gram of carbon dioxide over 94g/km.

It is proposed that this new system would work as a one-off charge and replace the current Vehicle Excise Duty (VED) model.

Vehicles emitting 94g/km CO2 or less would qualify for a Government subsidy discounting the new car price by £750. The price of a 1.25-litre petrol Ford Fiesta would increase from £9,084 to £10,734 under the scheme, while the 1.6-litre diesel Fiesta would see its price fall from £11,845 down to £11,495.

However, large SUVs, saloons and sports cars will be subsidising the scheme with some models in the most extreme cases attracting an additional £23,000 CO2 charge on top of the list price.

The idea has been put together by Government adviser Tim Leunig for CentreForum (read the full report here).

Leunig believes the UK could cut total carbon emissions by 2.6% if the scheme was implemented.

Ed Davey, Secretary of State for Energy and Climate Change, said: "I welcome this report. It is exactly the sort of innovative thinking we have come to expect from CentreForum."

VED currently generates £6 billion each year for the Treasury. The Government is looking for ways to claw back money from road tax as it is estimating it will lose £100 million a year due to customers choosing smaller, more fuel efficient models in tax bands which attract smaller or no VED charge.

In response, Paul Everitt, SMMT chief executive, said: "In the UK, vehicle manufacturers have cut new car CO2 emissions by over 23% since 2000, investing heavily in the development of low and ultra-low carbon vehicles across their product ranges.

"The existing VED system achieves a good balance of revenue generation while incentivising motorists to consider lower carbon vehicles.

"Higher charges for new car buyers will impact the economy and threaten the regular renewal of the vehicle fleet. This would have a detrimental effect on the UK motor industry and undermine the rapid progress it is making in reducing emissions and improving fuel efficiency."

Please add your comment on whether this scheme would be a good idea for the UK automotive retail industry in the box below.

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Author: Tom Seymour

Freelance writer

Freelance writer for AM, Tom Seymour has been a specialist B2B journalist covering the automotive sector for over 14 years. He started his freelance career in 2015 and currently writes for a variety of automotive, business and technology publications.

Comments (2)

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Weave - 08/10/2012 16:42

Wow 96 pages ! Only a government could commision such a thing. Seriously though, Tim Leunig raises some interesting thoughts throughout his report covering a number of elements relating to car useage, Safety, Noise, Economy as well as CO2 emmisions. I would have to question some of his conclusions carefully though before being convinced all could bring the benefits he hopes for. Interesting yes, no doubt. If Tim were to consider responses from the am-forum, I would perhaps advise him to steer clear of setting out his charges for New car Prices in a way that charges greater tax on some cars whilst offering a subsidy for others. There should be no subsidies Tim. Start at zero and work up progressively. Wherever there is any subsidy available in the car market (any other markets) there will be cheating to obtain it. I remember too well how some manufacturers took joy in increasing their prices during the scrappage scheme whilst we the tax payer subsidised the very same manufacturers sales. And just finally, why can nobody explain why the time honoured idea of getting rid of VED and replacing it with increased fuel duty would not work? It hits big cars and big mileages hard whilst small economic cars and small mileage users would reap a reward. In addition, visitors to the UK would have to contribute when they bought fuel. Hang on, Have I almost just done in a few sentences what Tim's 96 page document sets out to do? As the old training philosophy goes,- KISS xxxx Keep it simple stupid ! ;) Weave
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kevthebass - 10/10/2012 09:59

Scrap VED and tax fuel? It's a great idea, in fact it's the only logical and fair solution. The problem is that the cost of fuel is already around 80% tax. In fact it is already taxed twice, VAT and Fuel Duty, so we pay tax on tax. If VED was abolished it would have to be replaced by some other "administrative" charge to identify vehicles and their keepers etc. This would doubtless start at a nominal figure and before long escalate to a similar level to VED as it is milked to gain extra revenue. The motor industry has done more than any other in reducing CO2, and other emissions as well as making huge gains in recycling materials. Vehicle manufacturers are, almost uniquely, responsible for recycling their products at end of life. The majority of cars are getting smaller and more efficient, the desired aim of thecurrent VED scale. The problem is this means that the government gets less revenue. This report has nothing to do with the environment or emissions other than to use them as an excuse to create another scheme which increases tax revenue. The government taxes us to change our behaviour, usually on the back of health or the environment, and when we change our behaviour revenues drop and they have to think of another way to get money out of us. Let's face it if we all stopped smoking and drinking, which the goverment tells us is really bad for us, the Exchequer would be broke within a week. Of course the House of Commons is a Duty Free area already!
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