However, the Society of Motor Manufacturers and Traders (SMMT) has expressed concern that the industry wasn't consulted on the plan.
SMMT chief executive Mike Hawes said, "The chancellor’s Budget announcement on the regime came as a surprise and is of considerable concern. While we are pleased that zero-emissions cars will, on the whole, remain exempt from VED, the new regime will disincentivise the take-up of low-emissions vehicles. New technologies such as plug-in hybrid, the fastest-growing ultra-low emissions vehicle segment, will not benefit from long-term VED incentives, threatening the ability of the UK and the UK automotive sector to meet ever-stricter CO2 targets.
“The introduction of a surcharge on premium cars also risks undermining growth in UK manufacturing and exports. British-built premium cars are in increasing demand at home and globally, and the industry helps to support almost 800,000 jobs in the UK. Levelling a punitive tax on these vehicles will almost certainly impact domestic demand.”
Figures from the SMMT reveal that demand for low-emissions vehicles is helping to drive growth in the UK's new car market. In June 11,842 ultra-low-emissions vehicles were registered in the UK - a four-fold increase on the same period in 2014.
The premium tax was slammed by Jaguar Land Rover, which said: “Jaguar Land Rover believes placing a tax on vehicles over £40,000 sends a very negative symbol to the UK's premium automotive industry. The UK should be proud of its premium car manufacturers, which support huge numbers of jobs and investment, not specifically penalise it.”
Meanwhile, Mitsubishi, which has seen a surge in sales of its plug-in hybrid Outlander, is less fazed by the revamp, saying: “We wouldn’t expect the changes to affect PHEV. There are a lot of other incentives in terms of economy and cost of running the vehicle.”
The AA felt that motorists would make car-buying decisions on the changes, though, saying: “If you are prepared to take the first-year hit, people will ask what the benefit is of going for a car in the A, B or C bands. If you pay a premium in the first year, you can have something that emits more CO2.”
The money raised from VED will be set aside for a newly created roads fund, which will be put into action at the end of this decade to pay for the upkeep and improvement of Britain’s roads. Osborne said the new fund was designed to create “the sustained investment for the roads we so badly need".
He added: “This is a major reform to improve the productivity of our economy and improve life for the motorist."
Osborne said four-fifths of journeys in the UK are now taken by road, and yet the UK has built just 300 miles of motorways in the past 25 years.
The chancellor has also kept the promises he made during last year’s autumn Budget, reiterating that fuel duty would remain frozen for this year.
Describing his Budget as a "Budget for working people", Osborne said: “Our long-term economic plan is working, but the greatest mistake this country could make is to think that all our problems are solved.
"This is a big budget for a country with big ambitions."
Are the changes the right approach?
YES - Hilton Holloway
There’s a big problem with so-called ‘green taxes’. Back in the noughties, green taxes were seen as the best way to change behaviour.
The London Congestion Charge and CO2-based car taxation were both acclaimed as successful green taxes. Of course, the problem is that if green taxes do change behaviour, this also means the amount of tax raised will drop sharply.
The government’s own projections showed that the money raised from VED was about to crash from £4.4bn per year to under £3bn by 2020-21. With the UK still borrowing tens of billions each year, Osborne’s reforms were inevitable.
However, the upside is that, by 2020, the money raised from (what can now be properly called) road tax will be ring-fenced for the first time since 1937 and used only to maintain the roads.
Motoring is not cheap, but at least we’re going to get some improvement to the shattered roads for our cash.
NO - Jim Holder
At a stroke, George Osborne has decided that one of the chief motivators for buying a low-emissions car will be swept away. He has done so without consulting a car industry that has invested so heavily in meeting ever more stringent targets, and he has also set a different standard to that in place across the rest of Europe.
Why he has done so is less clear. He could have simply moved the VED CO2 bandings down, continuing to incentivise buyers to look at ever more efficient cars while keeping the government’s coffers topped up. Sure, a true road tax should focus on road use – but an adaption of the old system could have included an emissions benefit too.
What we’re now facing is an inconsistent set of legislation that rewards low emissions sometimes (company car tax, for instance) but not others. All the while, he’s extended punitive VED taxes to cars costing more than £40k – at the same time as de-incentivising makers of these cars from developing the kinds of innovative low-emissions technology that they have traditionally pioneered.
To my mind, the Budget seems to have delivered a set of regulations that are confusing to the motorist and damaging to the industry’s progress with low-emissions technology.
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