View our slide show of the cheapest cars to tax:

Pre-Budget report summary

1. Road tax bands to go ahead

New road tax bands for cars registered on or after March 1, 2001 are set to go ahead next April.

What does this mean?

The prices and CO2 emissions of the current seven tax bands will be revised – and six new bands will be added for higher-polluting vehicles (H to M).

There’ll be 13 lettered bands in total, from A to M – the more CO2 your vehicle emits, the higher its band – and the more it’ll cost to tax.

Everything you wanted to know about car tax – the current system

2. Tax cuts for higher-polluting vehicles

The Chancellor has announced a maximum increase of £5 per band, to combat the current economic downturn.

From 2010 rates will increase by a maximum of £30, instead of the previous proposed increase of £100.

What does this mean?

Next year you’ll pay £5 more than what you’re currently paying for road tax, as long as your car stays in the same tax band.

For example, cars currently in band G which were registered between March 2001 and March 23, 2006 will be subject to a VED bill of £215 from next year and £245 from 2010/11.

This is £100 less from the original estimate for band L in 2009 – and £115 less than 2010. As reported in our Pre-Budget predictions, owners of 2.5-litre Ford Mondeos won't be hit with a sudden rise in tax.

Cars in lower bands will either stay the same, or have their tax prices lowered.

New road tax prices: 2009 guide

3. First-year rate to go ahead

The first-year tax rate for cars registered after April 2010 is set to go ahead.

What does this mean?

If you buy a new car between April 2010 and March 2011 you’ll pay a different rate for road tax during the first year.
New cars which emit less than 130g/km of CO2 will be exempt from car tax for the first year, but more polluting cars will have higher fees.

4. VAT lowered

The cost of VAT (value added tax) has been reduced from 17.5 per cent to 15 per cent.

What does this mean?

The cost of VAT on all new goods will be cut by 2.5 per cent on December 1. However, petrol prices will be raised to offset this VAT cut – which means fuel won’t cost less at the forecourt. The same goes for alcohol and tobacco.

Car buyers can expect a decrease in new car prices.

5. Early capital spending

Up to £3b worth of capital spending will be brought forward from April 2010 to April 2009.

What does this mean?

More housing and road projects will get underway a year earlier than expected, which means more new roads and homes built in a shorter space of time.

The chancellor promised to continue improving public services, including public transport.

What do you think of the Pre-Budget report? Have your say on the Auto Trader Blog