New taxes on cars with high emissions set to raise an extra £1.2bn

The budget yesterday introduced a showroom tax on buyers of cars with the highest emissions of almost £1000 from 2010 in an overhaul of the road tax regime.

In contrast buyers of more environmentally friendly cars, with emissions of less than 130g of carbon dioxide per km, such as the Fiat Panda and Peugeot 207, will pay no tax in their first year.

From next year those cars that emit more than 225g of CO2 per km, such as the Porsche Boxster and Chrysler Jeep will be charged an increased top rate on their tax as vehicle excise duty received a shakeup that expands the regime by six bands to 13 next year.

The top M band targets the highest polluting cars and vehicle excise duty for newly obtained 4x4s and sports cars is set to more than double to £950 whilst some family cars are also expected to face a first-year levy of £750.

This cost will decrease but not significantly after the first year. The tax rate will drop to £455 which is nonetheless still 14% higher than the top band at present, G.

Cars such as the Peugeot 207 and Fiat Panda are set to pay a reduced standard rate from next year. This will start from nothing for cars such as the VW Polo BlueMotion, ranging to £90 for a Fiat Panda.

Yet this new tax regime is only anticipated to reduce UK motorists’ carbon dioxide emissions by less than 1%.

Buyers of large vehicles currently already face negative publicity from green campaigners and high prices at the pumps. Figures show that purchases of cars in the current top G band fell by 15% last year t 150,000. In contrast sales of low emission cars in the low bands A and B rose by 17%. The Society of Motor Manufacturers and Traders (SMMT) expect this to overtake G band vehicles this year.

Paul Everitt, SMMT’s chief executive, spoke of the clear trend towards lower-CO2 cars ever since the introduction in 2001 of a CO2-based road tax.

Edmund King, president of the AA held the idea that the duty overhaul would catch out many motorists. He also spoke of the small environmental impact that the new bands and showroom tax would actually result in, saying that of the over 30million cars on UK roads only a small proportion will be affected.

The treasury has stated that the proposals will raise an additional £1.2bn and would reduce carbon emissions by 500,000 tonnes, however this is less than 1% of the total emitted by drivers annually.

Alistair Darling, the chancellor, also published a final report on a review of low-carbon cars by Professor Julia King combined with an announcement of a £40m research programme into low-carbon vehicles.

The report suggests 40 recommendations, including teaching schoolchildren about the environmental impact of driving, the introduction of colour-coded car tax disc that will reflect emissions and including road transport in the European Union emissions trading regime.

Currently the government has accepted four of King’s recommendations stating that a full response to her report will be made in the summer. Recommendations accepted include putting government weight behind calls for an EU-wide target for car manufacturers to reduce average new car CO2 emissions by 2020 to 100g per km. This is a difference from the current target of 130g by 2012.

A 2p-per-litre rise in fuel duty was put back to October of this year after opposition from motorists and hauliers. Fuel duty is then set to rise by 1.84p per litre by April 2009, with a further 0.5p in 2010.

Environmental campaigners saw a wasted opportunity by the government to invest gains from fuel taxation in public transport, with tax representing two-thirds of a private car owner’s bill.

Executive director of the Campaign for Better Transport, Stephen Joseph, spoke of the fact that Gordon Brown had not followed up a proposal to invest fuel duty in buses and trains meaning that people are paying fuel duty but not seeing any return in transport terms.

The Freight Transport Association stated that the move would positively influence the wider UK economy in addition to freight operators as higher fuel bills stir up inflation by making items such as food more expensive.