Eco cars to be taxed more heavily?

Switching to an eco-friendly car could lower your motoring costs, but perhaps not for that long. The Society of Motor Manufacturers and Traders (SMMT) predicts the government will increase tax costs within the next decade.

75 per cent of cars will be exempt from tax entirely within 10 years, according to SMMT, which would mean a deficit in tax of £1.3billion – assuming the current emissions-based tariff system remains in place.

It is, therefore, likely the government will have to introduce a new system that will undo some of the penny-saving associated with buying an eco-friendly car. In short, the money saved now could be clawed back in the long run.

The SMMT report states: “The positive consequence of manufacturers supplying and consumers choosing ever-lower carbon-emitting vehicles is less supportive of revenue raising and this is set to become more acute.

“Unless regulators choose to alter the regime in the near future, government revenues from VED will decline to unsustainable levels. Around two-thirds of new vehicles registered are not liable for VED, and this proportion is set to rise.

“These increasingly efficient cars not only place pressure on the revenue raised from the first-year VED rates. Over time this shift has had an impact on the total VED take as older, more-polluting cars are replaced.”

Currently, cars that emit up to 130g/km of CO2 are exempt from Vehicle Excise Duty ─ VED or ‘car tax’ as it’s more commonly known ─ and those that emit less than 100g/km are exempt from paying it at all. 69 per cent of cars sold in the past 12 months had low enough emissions to avoid paying VED for the first year.

It’s not just low-emission cars are that will create a deficit. Electric cars, which are becoming more common and will continue to do so as the batteries needed to power them become cheaper, will only emphasise a shift away from fossil fuels. Tesla’s Power Wall may also play a role if it becomes popular.

So in the same way we were told to buy diesel cars to reduce the burden on fossil fuels, the government is giving us financial incentives to buy cars that are more ozone-friendly. But as we have seen with diesel cars, which are now viewed as the enemy, the benefit may be short-lived.

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