Many motorists looking to buy a new car could be facing a new round of tax hikes this April.
The Government kicked off a raft of confusing changes to Vehicle Excise Duty (VED) last April. No sooner have motorists begun adapting to these that some are now having to prepare for the next round of tax changes.
Announced in the last Budget, Chancellor Philip Hammond revealed that all new diesel cars could be forced up a tax band if they don't meet the latest set of emission standards, known as Euro 6.
If that all sounds confusing, you'll no doubt be delighted to hear that even more car tax laws changes are being proposed for 2020.
The rules would be in line with the Worldwide harmonised Light vehicles Test Procedure (WLTP), which is being phased in to replace the New European Driving Cycle (NEDC).
It could see test CO2 figures jump by 20% from today's ratings, so many cars will be going up tax bands. This may set some drivers back by an eye-watering £500.
VED changes are confusing and unpopular
Unsurprisingly, the public – or at least, the loveMONEY-reading public – aren’t convinced by the constant tinkering Vehicle Excise Duty.
Last year, when the current VED changes were revealed, we polled more than 2,000 readers and found that almost nine in 10 felt the rules were unfair on drivers.
And I agree: the rules are not as fair as they could be.
Not only are they quite alarmingly complicated, they also unfairly penalise drivers who don’t cover that many miles.
Here’s why.
Tax the behaviour
As a country, we benefit from people using their cars less. Cars pollute local areas, they fill the roads and they cause accidents.
What we actually want to encourage is for people to drive fewer miles and to do more walking, cycling, running and using public transport.
The answer to that is to increase Fuel Duty instead, not to hit drivers with a blanket annual VED.
Fuel Duty will be the daily tax nudge that will encourage people to make better journey choices – and it won’t affect electric or hydrogen-powered vehicles either.
Admittedly, Fuel Duty isn’t as nuanced as a car-specific tax, but there is still the opportunity to levy an additional charge at the time of purchase on those vehicles that emit more.
However, to stop that becoming unfair to motorists who cover few miles but enjoy owning a specific kind of car it simply makes more sense to tax the miles they do.
The easiest way to do that is to hike the Fuel Duty; it’s literally drive more – pay more.
With Fuel Duty, we can target the precise behaviour we want to change.
After all, if you want to encourage people to waste less food you don’t penalise them when they buy a large fridge; you look at what they throw away.
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Motivation, motivation, motivation
Another weird thing was how the then-chancellor George Osborne explained his reasoning.
In his 2015 Budget he said: “Because so many new cars now fall into the low carbon emission bands, by 2017, over three-quarters of new cars will pay no VED at all in the first year.
“This isn’t sustainable and it isn’t fair. If you can afford a brand new car, including some of the most expensive models available, you can pay no VED.
“If you can only afford an older, second-hand car, you have to pay more tax.”
Now, please don’t think that I have any argument with richer people paying more tax.
However, either VED is a way to encourage greener choices or it’s a way to penalise rich folk.
You can’t have it both ways.
Not when many squeezed-middle drivers who make more environmentally-sound choices by buying a low-emissions car will pay hundreds of pounds more than before just because they bought after April.
Unintended consequences
I’m also always a bit suspicious of any taxes that kick in at a certain price threshold rather than tapering up or down.
It just seems to create artificial cliff prices – just as Stamp Duty did until that was reformed.
For example, when requesting extras on their new cars, customers will have to be extra careful that these accessories don’t take the list price over the £40,000 threshold or they’ll be stuck with an additional annual charge of £310.
And it strips out some of the incentive to purchase a low-emissions car, although at least there is an emissions-based discount on the initial charge.
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Flaws in how VED is applied
We're already seeing how unfair last year's road tax changes are.
Motoring finance site TheCarExpert.co.uk highlights the Ford Mustang coupe, with its 5.0-litre V8 engine, as an example.
It costs £36,345 and puts out CO2 emissions of 299g/km.
Before last year's changes, it would have cost you £1,120 to tax in the first year and then £550 each year after that.
However, under the new system you’ll pay £2,000 in the first year and £140 a year after that.
By the time you reach year four you’ll be saving money and buy year five you’ll be £750 better off.
And the same kind of sums are true for a lot of high-polluting, sub-£40,000 vehicles.
Fairer, or more profitable?
It could be argued that the new system penalises the drivers of greener, lower-emitting cars more than it does the dirtier ones.
A cynic might suggest that the Government is more worried about preserving the VED income than it is about nudging drivers to better vehicle choices.
What do you think? Would hiking Fuel Duty be fairer than yet more VED changes? Have your say in the comments section below.
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