Has the digital tax disc led to a £223 million slump in DVLA revenue?

The Driver and Vehicle Licensing Agency (DVLA) has seen a £223 million drop in revenue since the paper tax disc was axed in 2014.

That’s according to a Freedom of Information Request, which saw £2.7 billion collected between October 2014 and March 2015 – a drop of nearly £223 million compared with the same period a year earlier.

Speaking about why the drop may have occurred, the National Audit Office said the swap from paper to digital, “has likely contributed to an initial increase in reported levels of non-payment, which has led to additional compliance and enforcement activity”.

In other words, the criticism of the government in failing to make the tax disc change known has cost it revenue in the short-term. Reports say this has led to the government calling in a debt collection agency to secure the missing payments.

The Department for Transport estimated it would lose £80 million in 2015, compared to the £30 million previously forecasted in 2013.

Motorists unaware of the changes or simply trying to avoid payment are perhaps only partly to blame for the revenue drop. The current tax rate system rewards cars below 100g/km of CO2 with no annual tax cost.

Meanwhile cars that range up to 120g/km of CO2 (band A, B and C) only pay £30 a year and many new cars meet this criteria, meaning the higher number of increasingly efficient cars on the road, the lower the revenues.

The digital Vehicle Excise Duty system (VED) cost the government £1 million to implement and was plagued by various issues at the onset, including causing sharp rise in the number of untaxed drivers and a service outage.

DVLA chief executive Oliver Morley said: “Almost 99 per cent of all vehicles on the road are currently taxed: that’s around £6 billion in vehicle tax passed to the treasury every year.

“We write to every registered vehicle in the UK to remind them when their tax is due and we have introduced a range of measures to make vehicle tax easy to pay. At the same time we are taking action against those who are determined to break the law.”

While there is a revenue drop now, the law is likely to catch up to vehicle excise duty (VED) dodgers so at least a part of the £223 million is only temporarily lost.

Then there’s the fact the government is introducing a new tax system in 2017 that penalises cars that emit lots of CO2 and cars that cost more than £40,000. Meanwhile only electric cars with zero emissions and cheaper than £40,000 will benefit from paying zero road tax.

History could repeat itself as a survey found only two-thirds of motorists have any idea about the new Vehicle Excise Duty tax rates that were announced during the Budget 2015.