Chancellor George Osborne has announced fundamental changes to the cost of car ownership – so how will his plans affect you?
Away from the headlines about the national living wage and cuts to benefits announced in the Summer Budget 2015, Britain’s drivers are all set to experience some big changes too. Here is a rundown of what you can expect:
Changes to Vehicle Excise Duty
From 2017, all new car purchases will be subject to 13 taxation bands based on the car’s CO2 emissions (similar to the existing Vehicle Excise Duty system but simplified) – owners of cars that emit between 1g/km and 50g/km will pay £10 for the first year while owners of the most polluting new cars (over 255g/km) will have to pay £2,000 for the privilege.
It’s after the first year of ownership though where the big changes happen. Instead of continuing to use the 13-band system, the taxation on a car aged over one-years-old will be simplified to three bands only – Zero Emission, Standard and Premium. The Zero Emission band will see owners of cars that produce 0g/km of CO2 exempt from the duty while the Standard band will see drivers charged a flat rate of £140.
In a dramatic shift though, the Premium band won’t be based on CO2 emissions anymore but on the cost of the car itself. If you paid over £40,000 for your pride and joy initially, you will have to pay a £310 supplement annually for the first five years of your car’s life on top of the £140 flat rate (so that’s £450 all in per year) until the sixth year where the cost will drop to £140 annually.
The chancellor claims that this new system will mean savings for 95% of drivers as the VED will drop from £166 to £140 on average. In the meantime, here’s a breakdown of the VED system for each of the 13 bands in the first year and the standard rate thereafter:
Roads Fund, Fuel Duty & MOTs
From 2020, the money raised by the new-style VED system will go into a new roads fund that the Chancellor claims will create the level of investment needed to fix Britain’s potholed roads. In the meantime, fuel duty will remain frozen for the remainder of 2015 and a consultation has been launched to explore the possibility of extending the time before a car must have its first MOT, increasing it from three to four years.
– Remember these changes will only apply to new cars bought on or after April 1st 2017. Existing cars will continue to use current system.