FactCheck: how much more car tax?

The background

Changes to vehicle excise duty (VED, or plain old car tax as it's more commonly known) were spelled out in the small print of March's budget.

But they weren't widely publicised until a row kicked off a few weeks ago, leading to accusations that the government was imposing yet more stealth taxes.

The changes, which take effect next spring, added six new bands of car tax, depending on how much carbon dioxide the car produced per kilometre. Greenest cars are charged the least; the heaviest emitters, the most.

All in keeping with the government's green agenda, but what has caused most anger is the backdating of the new taxes to apply to all cars bought since 2001.

Fair enough if you know what you're getting yourself into, so the thinking goes, but people with older cars are being stung by a retrospective tax that they couldn't have anticipated when they picked up the carbon-emitting car keys.

The government claims "the majority of drivers" - around 55 per cent - "will be better or no worse off".

The row has kicked off at a bad time for government, driverwise. Record high oil prices (which it can't do much about) mean high prices at the pumps - and a call for a reduction in taxes on fuel (which it can).

So how many people is the car tax measure actually going to affect and by how much?

The analysis

There's an element of crystal ball-gazing about this as it concerns future figures, but the government has released pretty detailed figures to the Conservatives about how it expects the new tax scheme to work.

Firstly let's look at the broader picture. It's no secret that the new tax will fatten the treasury's coffers; in the budget it was stated that the new measures were expected to yield £465m in 2009-10 (and £735m in 2010-11).

In the context of the £5bn or so that vehicle excise duty raised in 2006-07, this isn't such as big bite, but how does it break down for the people paying?

Graduated vehicle excise duty was introduced in 2001. Cars bought before this date are just split into two engine size bands (1549cc and below, or above 1549cc).

These account for around a third of the cars on the road. The smaller are taxed at £120 a year in both 2008-09 and 2009-10, and the bigger taxed at £185, rising to £200 (an 8 per cent increase).

But the bigger tax pull, and the one that's attracting the most attention, is the graduated VED for cars bought since 2001: around 15.65 million motors in 2008-09.

So how does it work?

Source: Treasury

The table above shows the current bands, and their equivalents next tax year. (This doesn't take into account the "showroom taxes", increased first year rates for some new cars, which come into effect in 2010-11.)

At the bottom of the scale, there's no change to the tax-free cars in band A. Cars in the current bands B and C go into the new bands B to F, and see their tax go down, or for those at the top of the emissions band, stay the same.

But it changes once we get to the higher-emitting cars. Those in the current band D see their tax increase by £5 or £30; those in band E see it go up by £5, £35 or £90, and those at the top of the spectrum could see rises of between £15 and £90 - or even £230, for some of the biggest older cars.

That seems to be doing what it says on the green tin: more tax for more polluting cars, and less for cleaner cars.

And while the highest level of tax increases are pretty hefty, it's notable that some increases are by as little as a fiver a year. This seems pretty standard when inflation is currently running at just over 4 per cent a year (or 3 per cent, depending on which measure you want to use).

But let's put this into context: how many cars are actually affected by each of the band changes?

Car-counting

Government figures put a paltry 395 cars in the zero-taxed super clean band A in 2008-09.

Bands B and C, which would also see tax dropping or staying the same, account for another 4,910,803 cars.

Band D contains 3,600,604 cars and it looks - and this is based on extrapolations from 2009-10 data, so shouldn't be taken too solidly - as if around three quarters of those would see their tax go up by just £5, while the other quarter would pay £30 more.

Using a similar methodology, we can estimate that around a third of the cars in band E (2,988,220 in 08-09), would be hit by a £5 rise, half by a £35 rise and a sixth by a £90 rise.

And the current top bands, F and G, contain 4,152,769 cars between them. All of these would be charged more - to the tune of £15 to £90 or more a year in 2009-2010 - although again, at the lower end of the spectrum this isn't much of a rise in real terms.

FactCheck rating: 3

How ratings work

Every time a FactCheck article is published we'll give it a rating from zero to five.

The lower end of the scale indicates that the claim in question largely checks out, while the upper end of the scale suggests misrepresentation, exaggeration, a massaging of statistics and/or language.

In the unlikely event that we award a 5 out of 5, our factcheckers have concluded that the claim under examination has absolutely no basis in fact.

The sources

The Telegraph, 18m face above inflation increases in car taxes
Budget 2008
Conservatives
Hansard, 14 May 2008

Your view

You've read the article, now have your say. We want to know your experiences and your views. We also want to know if there are any claims you want given the FactCheck treatment.

Email news@channel4.com

FactCheck will correct significant errors in a timely manner. Readers should direct their enquiries to the editor at the email address above.

Share this article

Send this article to a friend »

• Del.icio.us
• Digg
• Reddit
• Facebook
• StumbleUpon

What are these?