New VED system and fuel duty freeze in emergency Budget

Chancellor George Osborne, delivering the first Conservative Budget in 18 years, announced a new system for Vehicle Excise Duty to create a new roads fund by 2020, while confirming the Treasury will continue the fuel duty freeze.

In his emergency Budget speech, the Chancellor said fuel duty would be frozen for the rest of this year in line with the Budget in March but did not announce a further cut.

Due to Government action on fuel duty since 2011, fuel duty will have been frozen for five years by the end of 2015-16, the longest period since the mid-1990s.

However, the major change of interest to fleet operators was the creation of a new Vehicle Excise Duty mechanism that would be used to fund new roads. VED currently raises around £6bn for the Exchequer.

Increased spending on roads was announced in the last Budget, but the Chancellor said that we “need a long-term solution if we are going to fix Britain’s poor roads”.

As car buyers opt for the latest technologies that deliver increasingly lower carbon emissions, by 2017 three-quarters of new cars won’t pay VED, said the Chancellor, adding: “This is not sustainable and it isn’t fair.”

Instead from April 2017, a new VED system will be introduced and will be used for a roads fund by the end of the decade.

While there will be no change to VED for existing cars, for all new cars the duty in the first year will be set according to emissions, like today, but updated for new technology. Thereafter, there will be three duty bands – zero emission, standard and premium.

For standard cars – which covers 95% of all cars sold in the UK – the charge from 2017 will be a flat rate £140 a year. This is less than the average £166 that motorists pay today, but the new system is expected to only raise the same amount of revenue as today but, said the Chancellor, “the revenue will be secure for the long term”.

He added: “From the end of this decade, every single penny raised in Vehicle Excise Duty in England will go into that fund to pay for the sustained investment our roads so badly need.”

VED bands and rates for cars first registered on or after April 1 2017

CO2 emissions (g/km) First year rate Standard rate 
0 £0 £0
1-50 £10 £140
51-75 £25 £140
76-90 £100 £140
91-100 £120 £140
101-110 £140 £140
110 -130 £160 £140
131-150 £200 £140
151-170 £500 £140
171-190 £800 £140
191-225 £1200 £140
226-255 £1700 £140
Over 255 £2000 £140

 

Cars with a list price of above £40,000 will attract a supplement of £310 per year for the first five years in which the standard rate is paid.

In other Budget announcements:

  • The Government will also consult on extending the length of time a new car has before it has its first MOT test from three years to four years, which would save motorists over £100m a year .
  • The Government will publish a second road investment strategy by the end of this parliament.
  • The Government committed £14 million to local road improvements.
  • The Government is also improving road connectivity in the north by upgrading the A628 and the A61, and by upgrading the final stretch of the M1/A1 route between Newcastle and London to motorway.
  • The Government will legislate to apply a reduced rate of fuel duty to aqua-methanol in Finance Bill 2016.

Company car tax

There was no change to BIK taxation rates for company cars in the emergency Budget. As signposted previously by the Chancellor, company car tax goes up by 2% for the current tax year 2015/16, and by the same amount for each of the next three years for all cars emitting more than 75g/km of carbon dioxide, up to a maximum of 37% (see table).

Vehicle CO2
g/km
2015-16
% BIK Rate
2016-17
% BIK Rate
2017-18
% BIK Rate
2018-19
% BIK Rate
2019-20
% BIK Rate
Petrol Diesel All fuels All fuels All fuels All Fuels
1-50 5 8 7 9 13 16
51-75 9 12 11 13 16 19
76-94 13 16 15 17 19 22
95-99 14 17 16 18 20 23
100-104 15 18 17 19 21 24
105-109 16 19 18 20 22 25
110-114 17 20 19 21 23 26
115-119 18 21 20 22 24 27
120-124 19 22 21 23 25 28
125-129 20 23 22 24 26 29
130-134 21 24 23 25 27 30
135-139 22 25 24 26 28 31
140-144 23 26 25 27 29 32
145-149 24 27 26 28 30 33
150-154 25 28 27 29 31 34
155-159 26 29 28 30 32 35
160-164 27 30 29 31 33 36
165-169 28 31 30 32 34 37
170-174 29 32 31 33 35 37
175-179 30 33 32 34 36 37
180-184 31 34 33 35 37 37
185-189 32 35 34 36 37 37
190-194 33 36 35 37 37 37
195-199 34 37 36 37 37 37
200-204 35 37 37 37 37 37
205-209 36 37 37 37 37 37
210-214 37 37 37 37 37 37
215-219 37 37 37 37 37 37
220-224 37 37 37 37 37 37
225-229 37 37 37 37 37 37
230 or above 37 37 37 37 37 37