Treasury deficit could see road tax hike for eco-friendly drivers

Drivers of low-emissions vehicles could be seeing their tax costs rising dramatically, according to the Society of Motor Manufacturers and Traders (SMMT).

As the Treasury scrambles to keep its balance sheet in the black, the SMMT predicts that in the coming years it will start readjusting vehicle tax in order to draw more money from the taxpayer.

Less drivers paying road tax could mean higher tax prices

The current rules state that drivers of cars which emit less than 130g/km of CO2 pay no car tax in their first year of ownership, while cars that emit less than 100g/km pay no road tax whatsoever.

As a result of this and the other added benefits of low-emissions cars, uptake has surged with a total of 69 per cent of the cars sold in the past year exempt from road tax in their first year.

Furthermore, the SMMT has forecast that within a decade, 75 per cent of all cars on the road will be tax-exempt entirely, which would lead to an estimated £1.3 billion deficit if the rules stay the same.

The SMMT report states: “The positive consequence of manufacturers supplying and consumers choosing ever-lower carbon-emitting vehicles is less supportive of revenue raising and this is set to become more acute.

“Unless regulators choose to alter the regime in the near future, government revenues from VED will decline to unsustainable levels.”

The report continued: “These increasingly efficient cars not only place pressure on the revenue raised from the first-year VED rates. Over time this shift has had an impact on the total VED take as older, more-polluting cars are replaced.”

As a result, any changes to the current vehicle excise duty system would likely include a lower threshold for low-emissions vehicles, plus increased rates for the most polluting vehicles.

Last week, the SMMT also reported that CO2 emissions from new vehicles are at an all-time low, with an average of 124.6g/km from the typical new car, well below the 130g/km tax limit.

While the financial effects of the popularity of low-emissions vehicles are yet uncertain, for the meantime it’s still good news for drivers who benefit from cheaper motoring.

Still good news for eco-friendly drivers in the meantime

Mike Hawes, chief executive of the SMMT, said: “The UK automotive sector has made enormous strides in cutting emissions across the board and should be proud of its achievements.”

As well as being good for the environment, the reduction in emissions is also good news for buyers and drivers, who are increasingly benefitting from reductions in road tax thanks to cleaner cars.”