Car tax changes do not go far enough, say MPs

The proposed changes in car tax rates have been "poorly explained and communicated" and do not go far enough, a report by MPs said today.

The projected carbon savings from the introduction of new VED bands were "far less than they could be", the report from the House of Commons Environmental Audit Committee stated.

But the Treasury insisted the reforms had been explained clearly.

Rocketing fuel prices forcing motorists off the road

The report went on: "We are surprised that the Treasury has risked provoking such political opposition for an environmental measure which, according to its projections, is of limited benefit."

The committee was also disappointed "that the Treasury had not calculated what the impacts of the (VED) Budget (changes) will be on emissions from second-hand cars, when this was one of the main objectives of the changes".

MPs said a failure to advertise green tax details to the public "breeds suspicion about their objectives, increasing the perception of them as revenue-raising measures with no environmental purpose"

Fuel duty rise scrapped

The Treasury should pay more attention to communicating the details and objectives of VED and other environmental taxes in the future, and should examine the case for a more ambitious reform of VED, the report added.

The committee was looking at the whole question of VED following the announcement in this year's Budget that VED rates were to rise for existing cars with higher emissions registered since 2001.

The committee said that attention had since focused on the 1.1 million high-carbon cars, registered between 2001 and 2006, that will see their VED more than double, from £210 to £430 or more.

Car tax rises could be scrapped

The MPs said they strongly supported the Treasury's use of VED as an environmental tax and welcomed the changes announced in the Budget.

But their report went on: "However, we are seriously concerned that even the projected differentials between VED bands remain too small to be effective and, in consequence, the projected carbon savings are far less than they could be.

"We also believe that both the proposed changes in VED rates and the objectives of VED as an environmental tax, have been poorly explained and communicated."

MPs also said that the Treasury should consider a "car scrappage scheme" to offer drivers of high-emission cars a payment to trade in their vehicles for more efficient models.

New road taxes - how it will affect you

The MPs said they agreed with the Treasury that new VED bands for cars bought since 2001 was not retrospective taxation and that there was "nothing intrinsically unfair or unusual" about it.

But the committee said there were real concerns over the financial effects of raising car tax on existing vehicles owned by lower income households, although it noted there was a lack of hard evidence on how many will be disadvantaged by these changes.

The committee welcomed the so-called "showroom tax" - a series of new, first-year rates of VED - higher than standard rates for high-emissions cars, lower for low-emission cars.

In calling for a more-ambitious reform of VED, the MPs said that this might enable the Government to offer bigger tax discounts for low-emissions vehicles, as well as leading to higher carbon savings.

The committee also called for the Government to accelerate the development of new vehicle technology, improve public transport, and encourage car-sharing schemes.

The committee's chairman Tim Yeo (Con: South Suffolk) said the proposed changes were a step in the right direction, but added: "However, the differentials between high and low carbon cars are still nothing like wide enough to make a big impact in practice. According to the Government's own figures, these changes will only have a very limited impact on the environment.

Mr Yeo added: "In all, the Treasury must do far better in communicating the details and benefits of its green tax policies."

Friends of the Earth transport campaigner Tony Bosworth said: "We're delighted that the committee believes that the Government's car tax changes are right in principle and that they have urged the Treasury to consider our suggestion of a car scrappage scheme."

Budget 2008 - the full report

A Treasury spokesman said: "The reforms to vehicle excise duty will strengthen the incentive to develop and use cleaner, more fuel-efficient cars, while saving an additional 1.3 million tonnes of CO2 by 2020, and encourage greater environmental innovation in the motor industry.

"We set out the position very clearly in the Budget, and have repeatedly said that under the new VED bands a majority of motorists will either pay less or the same in real terms."

Sheila Rainger, the RAC Foundation head of campaigns, said: "It is a matter of basic fairness that significant VED changes should only apply to future purchases, not to vehicle choices made up to seven years in the past.

"It is beyond belief that the Treasury introduced these changes without any research into the likely effects on the second-hand market, or a clear understanding of how they would affect low-income households, which already spend a disproportionate amount of their family budgets on transport.

"These reforms will take £2 billion from motorists already struggling with high fuel costs, and risk making transport less affordable for any but the rich. The Government must go back to the drawing board and come up with a tax system which genuinely promotes greener motoring."

AA president Edmund King said: "It is intrinsically unfair and unusual to introduce a new system of taxation that applies to families who have already purchased their vehicles and are unable to sell them.

"This is not sending out a green signal but a mean signal and is penalising many families who cannot afford to change their car. Previous TRL (Transport Research Laboratory) research looking at the effects of a £25 charge for Band G vehicles in London found that larger low-income families and ethnic minorities would be adversely affected as they tend to need larger cars.

"The used-car fleet could be cleaned up by targeting the one million or so untaxed, uninsured, unregistered cars and crushing them, rather than picking on poorer, law abiding motorists. A 'scrappage scheme' might be worth considering but somewhat back-fired in France as many farmers cashed in on rotting (Citroen) 2CVs found in their barns."

Labour's Peter Kilfoyle said the Government's proposals were "confusing" as "huge numbers of cars" would pay less tax than they were paying now.

He said: "This has two major errors, the first one is that it taxes ownership - it doesn't tax usage.

"If you are trying to have a really big impact on the consumption of oil and all the problems that go with that you have to look at fuel tax, not road tax.

"There is a retrospective element to this and it means that people who bought cars four or five years ago are now going to be taxed in a way which they never imagined when they bought the cars in the first place."

The MP for Liverpool Walton and former minister told BBC Radio 4's Today programme: "The Government's intention on this is in part a good one in attempting to address as we say green issues. "Unfortunately it falls disproportionately on people who own second-hand cars."

He added: "I don't believe that the old ones policy...is fair, it's inequitable for people who may very well need those cars in order to get to work.

"We are not talking here about gas guzzlers - they may be everyday cars, family cars."