Skip to main content

Excise Duties: Motor Vehicles

Volume 479: debated on Monday 21 July 2008

To ask the Chancellor of the Exchequer (1) how many people paid vehicle excise duty at the pre-graduated rate in 2007-08 in respect of cars of engine size (a) 1549cc and below and (b) above 1549cc; what estimate his Department has made of the number of vehicles in each category in low-income households; and if he will make a statement; (208268)

(2) what estimate he has made of the number of people who will pay vehicle excise duty (VED) at the pre-graduated rate in 2008-09; how many will pay VED at (a) a lower rate, (b) a higher rate and (c) the same rate in (i) 2009-10 and (ii) 2010-11; and if he will make a statement;

(3) what estimate he has made of the revenue from vehicle excise duty at the pre-graduated rate from vehicles with engine sizes of (a) 1549cc and below and (b) above 1549cc in (i) 2008-09, (ii) 2009-10 and (iii) 2010-11; and if he will make a statement;

(4) what estimate he has made of the number of cars with engine sizes (a) 1549cc or below and (b) above 1549cc liable for vehicle excise duty at the pre-graduated rate in (i) 2008-09, (ii) 2009-10 and (iii) 2010-11; and what estimate he has made of the number of cars in each category in low-income households in each year; and if he will make a statement.

To ask the Chancellor of the Exchequer how many new vehicles were registered in each year from 2001 to 2006, broken down by each of the new vehicle excise duty (VED) bands to be applied to cars registered in those years; what the net tax take will be from the applications of these new bands to those vehicles; and what the net tax take for those vehicles would have been had VED continued to be applied as previously. (210709)

To ask the Chancellor of the Exchequer what the evidential basis was for his statement of 4 June 2008, Official Report, column 765, that the majority of drivers will benefit from the proposed changes to vehicle excise duty; and if he will make a statement. (210664)

To ask the Chancellor of the Exchequer (1) what assessment he has made of the effect of his proposed changes to vehicle excise duty on disabled people; (219729)

(2) what assessment he has made of the likely effect of proposed vehicle excise duty increases on vehicle owners rural areas with limited public transport.

The Budget 2008 included proposed reforms to the system of CO2-based VED, aimed at strengthening the incentive to develop and use cleaner, more fuel-efficient cars. The reforms build on the system of banding by CO2 emissions introduced in 2001 in response to rising concern over the impact of vehicle emissions.

While CO2 emissions from new cars have dropped by 13 per cent. since 1997, overall emissions from road transport still account for over 20 per cent. of the UK's total emissions and it is clear that we must go further to ensure we meet our environmental targets.

Proposed EU targets supported by the Government mean the CO2 emissions of an average new car will need to be cut to 130 grams per kilometre by 2012. In addition, the King review, published alongside the Budget, showed that carbon emissions could be reduced by 25 per cent. if motorists shifted to the lowest carbon car within a particular class.

The Budget 2008 reforms to VED will increase the number of bands from seven to 13 in 2009-10. From 2010-11, new cars will be taxed differently in the first year to influence purchasing choices at the point of sale. Overall these measures will ensure that drivers of the lowest emitting cars will benefit from a reduced VED rate and those who drive higher emitting cars will pay more.

The following tables are based on the new VED bands published on page 122 of the Budget Red Book and set out estimates for the number of cars that will sit within each new VED band in both 2009 and 2010. They also show how the amount that these cars pay will compare in real terms to the rate in 2008. Those who are eligible for the higher mobility element of disability living allowance are exempt from VED. In addition, there is also an exemption for organisations that operate passenger vehicles for the benefit of disabled people. In total, over 1.1 million disabled motorists are exempt from VED.

Furthermore, Government continue to support the long established motability scheme, set up by the Government in 1977 to provide disabled people with safe, reliable and affordable cars.

By 2010, 55 per cent. of motorists will pay less or the same in real terms as a result of these reforms. In addition, excluding first rates for new vehicles, the reforms mean that:

80 per cent. will pay no more than £55 extra;

95 per cent. will pay no more than £100 extra; and

5 per cent. will pay between £100 and £245 extra.

2009-10

Band

CO2 (g/km)

2009-10

Percentage pay less

Percentage pay the same

Percentage pay more

A

Up to 100

400

0

100

0

B

101-110

217,000

100

0

0

C

111-120

470,000

100

0

0

D

121-130

670,000

100

0

0

E

131-140

2,394,000

100

0

0

F

141-150

3,087,000

100

0.

0

G

151-160

3,256,000

0

100

0

H

161-170

2,400,000

0

50

50

I

171-180

1,785,000

0

0

100

J

181-200

2,577,000

0

0

100

K

201-225

2,550,000

0

0

100

L

226-255

277,000

0

0

100

M

Over 255

311,000

0

0

100

All bands

19,994,400

34

22

44

2010-11

Band

CO2 (g/km)

2010-11

Percentage pay less

Percentage pay the same

Percentage pay more

A

Up to 100

9,000

0

100

0

B

101-110

266,000

100

0

0

C

111-120

565,000

20

80

0

D

121-130

822,000

100

0

0

E

131-140

2,813,000

100

0

0

F

141-150

3,393,000

0

100

0

G

151-160

3,560,000

0

100

0

H

161-170

2,558,000

0

40

60

I

171-180

1,912,000

0

0

100

J

181-200

2,714,000

0

0

100

K

201-225

1,535,000

0

0

100

L

226-255

1,002,000

0

0

100

M

Over 255

766,000

0

0

100

All bands

21,915,000

18

39

43

The graduated VED rate will apply to all cars for which emissions data are available, i.e. those first registered after March 2001. For cars purchased pre-March 2001, different rates apply.

There are also separate arrangements in place for alternative fuel cars which are defined as ‘gas-propelled vehicles, and those capable of being propelled by petrol and gas or electricity and petrol/diesel’.

These cars will receive a discount on their graduated VED. In 2008-09, alterative fuel cars in bands A to E receive a £20 discount from the standard graduated VED rate, and cars in bands F and G receive a £15 discount. In 2009-10, the discount for cars in new bands A to I will be £20, and £15 for cars in bands J to M. In 2010-11, all alternative fuel cars will receive a £10 discount from the standard rate.

As has been the practice under successive Governments, the VED rates will apply to all cars, including second-hand ones, where emissions data are available. Since the number of used cars sold is three times that of new cars, it is important to provide an environmental incentive to the used car market as well as the new car market.

The new rates will include a transitional period for cars registered between March 2001 and March 2006 that emit 225g/km or higher. These cars have been charged at a lower rate since 2006. They are currently charged the rate for current band F (£210), when the correct band for their emissions is band G (£400).

In order to reduce the financial impact on these motorists in any one year, these vehicles will be charged a lower transitional rate of £300 in 2009, before moving into band L or M in 2010—bringing them in line with all other vehicles with the same emission levels. This group represents the 5 per cent. of motorists in graduated VED who will pay between £100 and £245 extra in non first year rates from 2010.

The graduated VED rates do not apply to cars purchased before March 2001, as there are no comprehensive emissions data available for these vehicles. Motorists who bought their cars before March 2001 will continue to pay VED based on the size of the engine. Cars with engines below 1549 cc will have their VED rate frozen at £120 in 2009—a fall in real terms—while cars with engines above 1550 cc will see their VED rate increase by £15. Having different rates depending on the engine size ensures that there is an environmental signal for VED taxation for pre-2001 cars, taking account of the data available.

The following table is based on the categories for pre- March 2001 cars published on page 123 of the Budget Red Book and sets out the current Treasury estimate of the number of cars that will sit within each category.

Estimated number of pre-2001 cars by band

2007-08

2008-09

2009-10

2010-11

1549cc and below

4,198,000

3,771,000

3,322,000

2,851,000

1550 cc and above

7,091,000

6,403,000

5,687,000

4,934,000

In 1997 the rate of VED was £145. Had the Government simply uprated the duty in line with inflation then all motorists would have to pay £200 in 2009. Therefore, all cars purchased prior to 2001 will pay no more in real terms in 2009 than in 1997. The single VED band meant that all car owners were taxed the same amount, regardless of the type of car that they drive. By introducing and then reforming graduated VED since 2001, the Government have made the system less regressive, as well as ensuring that the most polluting cars pay more than the least polluting.

Statistics for the number of the vehicles in low-income households are not available for 2007-08, and has not been forecast for 2008-09 onwards. The Government do not collect data from drivers when purchasing tax discs according to their household income. The best available relevant data on the impact of VED on low income households are set out in my PQ answer of 4 June.

The Treasury does not hold information on the specific impact of proposed vehicle excise duties on rural areas. Working vehicles that do not use public roads other than for travelling no more than 1.5 kilometres between different areas of land owned by the same person are exempt from VED.