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UK Budget 2008

Published: 12 March 2008

UPDATED... The UK's 2008 Budget has introduced a major car tax shake-up that will leave Britain's motorists £1.6 billion worse off, according to the Opposition.

Motorists driving the highest polluting cars face tax hikes of up to £950 in showroom levies from April 2010. Chancellor Alistair Darling revealed a new, steeper 'purchase tax' to penalise high-CO2 cars, but postponed the proposed 2p fuel duty hike for a further six months. Expect more pain in the coming months, then.

Darling stood up in the House of Commons at 12.30pm GMT to deliver his first Budget speech.

Budget changes at a glance

• Major reform of VED annual tax discs from 2009
• All cars producing over 160g/km to pay a 'supplement to VED' from 2009
• Models pumping out more than 255g/km will be hit with £950 purchase supplement in the first year (£455 of which is VED)
• In subsequent years, these cars qualify for £455 a year VED
• From 2010, the cleanest sub 130g/km cars will pay no road tax in their first year
• Number of VED road tax bands to grow to 13
• New band M is for cars producing more than 255g/km
• New band L for models between 226 and 254g/km
• Fuel duty will rise by 0.5p per litre in real terms
• Darling is postponing the planned 2p fuel duty increase until October 2008
• The Government is setting aside cash to test road pricing
• Labour to lobby Brussels for tougher emissions targets

New CO2 bands for cars

There were few real surprises in the Budget speech - the gas-guzzler tax hikes were widely leaked at the weekend, but a lot of the detail is now coming out in the Treasury documents. Darling announced a new 13-band road tax system that will help differentiate between the dirtiest cars and those that are merely big family models.

One-off purchase tax

One of the biggest changes is the new purchase supplement, effectively a one-off tax to deter buyers  in the showroom from the most polluting models. From 2010, someone buying a large petrol family car will be hit with a £950 first-year tax bill.

The news that the Government is setting aside a fund for road pricing trials will alarm many motorists. This is the ultimate hot potato that generations of politicians have grappled with - and the Labour party seem to be the ones who will actually make headway with by-the-mile road charges.

It's also interesting to note Darling's revelation that the Government would lobby the European Commission to ramp up its emissions crackdown. This puts the Government at loggerheads with the car industry that is desperately trying to water down and postpone the planned 120g/km CO2 target by 2012.

Various Government's think-tanks advise ramping up the purchase cost of so-called gas guzzlers, believing that customers take more notice of initial purchase price than ongoing disincentives such as the annual tax disc. They are also calling for new laws forcing manufacturers to place more emphasis on environmental information in their advertising.

Come back to CAR Online throughout the day for further Budget details and analysis. Click 'Next' to read reaction to the 2008 Budget.

What do you think? Has the chancellor gone too far? Not far enough? Join the debate by clicking 'Add your comment' below

Budget 2008: the motoring lobby's reaction

The Society of Motor Manufacturers and Traders, which represents the UK industry, said that new-car CO2 emissions had dropped by 13 percent since 1997 - and called for the chancellor to think before wading in with steep increases.

'Since the introduction of CO2-based road tax in 2001, there has been a clear trend towards lower-CO2 new cars,' said SMMT chief executive Paul Everitt. 'Encouraging even more buyers to choose models with class-leading emissions should be the priority. We are therefore pleased to see an increase in the number of bands to 13 from 2009. However, introducing what is effectively a sales tax for many new cars is a retrograde step. Trying to force people out of high-value cars has no environmental merit and will be seen as a smokescreen for revenue-raising.'

The RAC Foundation said it was disappointed there was no extra cash to improve the UK's road network - despite the chancellor and Eddington Transport Study recognising the need to cut congestion to develop the economy.

'There is no environmental case for higher taxes,' said Sheila Rainger, acting director of the foundation. 'Based on the Government's own figures in the Stern Review, the full cost of the greenhouse gases produced by road transport amounts to no more than 14p per litre. Road users are the only energy users paying the full cost of their carbon emissions; unlike rail or air travellers.'

'Hammering the motorist again'


Shadow chancellor George Osborne slammed Darling’s Budget and claimed the average British family would be £110 a year worse off.  ‘It’s kicking Britain’s families when they are down,’ he said.

Osborne claimed that motorists will pay £1.6bn extra in tax – suggesting that, by the Conservatives’ estimates, this Budget is very much not tax neutral. In other words, the motorist is being taken for a ride. Again.

By Tim Pollard

Editorial director of CAR's digital publishing arm. Motoring news magnet

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