It was billed as being the greenest budget yet – but Alistair Darling's first outing as Chancellor saw both gains and losses for Britain's beleaguered drivers. The decision to freeze the proposed 2p/litre rise in fuel duty until October came as welcome relief in the face of the relentless rise in fuel prices, but reforms to road-tax and company car tax are going to hit the drivers of higher-emitting models very hard – and many will be alarmed by Darling's announcement of further funding for road-charging pilot schemes.
Reduced CO2 emission targets
The Government has said it will be pressing the EU to introduce tougher targets for the long-term reduction of CO2 from cars. It is already clear that the original target to reduce the average emissions to 140g/km by 2008-9 will be missed and the EU has since introduced an amended target – to reduce average emissions to 130g/km by 2012. The Chancellor used the budget report to announce that the Government will lobby the EU to set an even tougher medium-term target, committing car-makers to reduce average CO2 emissions to just 100g/km by 2020: a figure that even the lightest and most fuel-efficient cars currently have difficulty meeting.
Increased road tax for high CO2 vehicles
The Budget also announced a radical review of road tax bands, including the scrapping of the existing seven-band system and its replacement with a new 13-band system.Currently cars are split between bands ‘A’ and ‘G’ according to their CO2 emissions, with cars emitting below 100g/km falling into ‘A’ and anything putting out more than 225 g/km falling into the highest band ‘G’.From the next April, the bandings will be tightened up, with the new band ‘L’ applying to cars emitting between 225g/km and 255 g/km and a new ‘super-band’ – ‘M’ for cars that put out more than 255 g/km.Road-tax rates are going to be dramatically increased for higher emitting vehicles, with new cars also subject to a higher first-year VED charge (effectively a registration tax) according to CO2 emissions. Cars emitting under 130 g/km will be exempt from this and cars emitting between 131 g/km and 160 g/km will pay no more than their standard VED rate – but anything falling into the new band ‘L’ will pay £750 in the first year and then £430 a year in VED and the new band ‘M’ will be hit by a £950 first-year charge and then a £455 annual VED rate.Cars are also likely to be given colour-coded tax discs, with local authorities empowered to vary parking and congestion charges according to a vehicle’s emissions.
2p fuel duty rise frozen
Despite the hype around what has been proclaimed the greenest budget yet, Chancellor Alistair Darling announced that the proposed increase in fuel duty of 2p a litre – which had been scheduled to take place on April 1st – has been suspended until October. The move follows intensive lobbying from motoring and road transport organisations, and reflects the fear that fuel prices are likely to rise further on the back of an increase in global oil prices. It’s good news for drivers – but the price of fuel has still risen by almost 20 percent in the last year. The move will cost the Treasury £500 million in lost revenue, but much of this will be recovered by higher duty and VAT on the rising fuel prices – which currently average 106p/ litre for petrol and 113p/ litre for diesel.
National road pricing
Last week it seemed that road charging proposals had stalled – but now Alistair Darling used his budget to report that extra funds will be released to allow trials in national road charging to continue. Speaking during the budget announcement, the Chancellor said that road pricing could help to reduce congestion in future and that the funding would enable the development of a national road pricing system.