FactCheck: backdated car tax?
Updated on 02 July 2008
Is the government's plan to change car tax a sneaky, retrospective measure?
The claim
"[The backdated changes to car tax are] not of course backdating in the traditional sense ... what's been announced are changes to tax in the current and future years. That's the way changes in vehicle excise duty have always been announced."
Tim Yeo MP, Today, BBC Radio 4, 2 July 2008
The background
Pressure is mounting on the government to drop planned changes to car tax, which could see annual charges for the most polluting old vehicles increasing from £210 to £440 a year.
One of the main criticisms of the increase is that it's a sneaky, retrospective measure, punishing those who bought cars up to seven years ago. To add fuel to the fire, it was set out in this year's budget, but not mentioned in the accompanying speech.
But support came from an unlikely quarter today: Conservative MP Tim Yeo. The chair of the Commons environmental audit committee said that higher taxes for the highest polluting cars were right "in principle" and argued that, as most cars sold are used rather than new, old cars shouldn't be ignored from an environmental point of view.
Although he acknowledged there was a debate over whether the measures were being introduced "too quickly or in a way that is too burdensome", when asked about the backdating he pointed out that the tax applied to future years, and that this was the way changes to VED are always announced.
So just how retrospective is the tax? What was said about polluting cars, when?
The analysis
Cars bought before 2001 had (and still have, although slightly revised) just two different tax rates, based on engine size.
All the fuss is over the "graduated system of VED", which has been in force since 2001.
The new measure for "newly purchased cars" was announced in the 2000 Budget - the speech this time, not just the report - and it was all about the carrot rather than the stick.
The four-band system would "reward the most environmentally friendly vehicles," then-chancellor Brown told parliament, and went on to soothe that "95 per cent of new cars will pay less than they would under the current system, half of them at least 30 pounds less".
The budget set out four bands: up to 150g CO2/km, 151 to 165g, 116 to 185g and 186g plus.
At the painful end of the spectrum, taxes on higher-polluting cars rose pretty slowly at first, held constant for a year, then increased.
Each car was charged based on its emissions, with different rates for petrol, diesel and cars running cleaner fuels.
Band A petrol cars were charged £100, band B £120, band C £140 and band D £155.
For diesel, the tariffs were £10 or £5 higher: band A was £110, band B £130, band C £150 and band D £160.
Adverts highlighted the government's key message: "The less it pollutes the less you play".
So, it was spelled out pretty clearly at the time that cleaner cars would get lower taxes. Then what happened?
Three additional bands have been added since 2001, giving lower taxes to cars emitting lower than 151 CO2 g/km.
At the painful end of the spectrum, taxes on higher-polluting cars rose pretty slowly at first, held constant for a year, then increased by a fiver for 2003-04, held constant for another year, then increased by another fiver for 2005-06.
After that, though, things got pricier more quickly. A petrol car jumped from £165 to £190 in 2006-07, and then crept up by a further £15 in 2007-08. An extra, higher band was also added for heavily polluting cars registered after March 2006.
The verdict
The government made it clear eight years ago that the less you pollute, the less you pay.
But in subsequent years, most car tax rises have been pretty inconsequential in real terms.
If the 2001 car taxes had simply risen with the rate of inflation, the highest taxed (band D) petrol car would charged £190.91 in March 2008; £197.07 for a diesel version.
By next year, likely inflation will put the figures at around £200 each if the measures had been kept constant in real terms.
But the proposed plans would be a pretty hefty increase on this; in the worst-case scenario, the car could be charged more than double this.
Yeo does make a reasonable point. The principle of graduated vehicle taxes based on the emissions of the vehicle isn't retrospective. But the planned new bands are, for the hardest hit, a pretty astronomical rise compared to what's happened before.
FactCheck rating: 2.5
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The sources
IFS Fiscal Facts - Vehicle Excise Duty
Budget speech 2000
Budget 2001 report
Budget 2004
Budget 2003
Budget 2005
Budget 2008
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