Car Tax - The Right Idea Implemented Badly

The 2008 Budget

The 2008 budget introduced some significant changes to the current car tax (vehicle excise duty or VED) aimed at encouraging drivers to buy more fuel efficient cars. However, the changes have been widely criticised as being nothing more than a green smokescreen and way of increasing revenue. In principal the idea is sound and even some of the most hardened petrol heads agree that we need to do what we can to reduce our emissions. So why are the changes causing such a fuss?

Who is affected?

The biggest issue with the changes is that the tax changes are being applied retrospectively. So anyone who drives a car first registered between March 2001 and March 2006 that emits more than 186g of carbon dioxide per kilometre will see their tax go up from £210 to £300 next year and then £430 in 2010. Ok, so what if the drivers of gas guzzlers have to pay more? The first issue is that this affects some pretty average cars, such as the Ford Mondeo or people carriers owned by families.

Effects on Second Hand Values

The tax changes are starting to have an impact on the second hand values of those cars most affected by the changes. Again you could argue that it doesn't matter, don't we want those cars to be worthless so they are scrapped and no longer in use? The problem here is that this may end up having the opposite effect to what was intended. The price of gas guzzlers goes down but due to increased demand the price of efficient cars goes up. This makes it much harder for people to change to a more fuel efficient car. The second thing to consider is that it will be many years before the gas guzzlers end up in the scrapyard. As the guzzlers become cheaper to buy people will use the money saved on the purchase cost to offset the additional tax.

An unfair tax

Traditionally governments avoid retrospective taxes, so it was a big surprise that the current government committed what amounts to political suicide by bringing in these highly unpopular changes. We need to take bold actions to curb our carbon dioxide emissions, but imposing a financial penalty on drivers who bought their cars many years ago is unfair in the extreme. Applying the changes retrospectively was also unnecessary, as what really counts is the sales of new cars. By changing the tax bands for new cars we can start to improve the efficiency of the cars on the road in a much fairer and sensible way.

Sending the wrong message

These tax changes give the wrong message, they associate being green with higher taxes, this should not be the case. Rather than penalise people for not being green shouldn't we reward those who are being green? Even Friends of the Earth said it gives green taxes "a bad name".

Size doesn't matter

A Range Rover that covers 1,000 miles a year will emit less Co2 than a Ford Fiesta that covers 20,000 miles a year. So maybe a fairer approach would be to increase fuel duty, however, it will take a bold government to implement such changes as they will certainly be highly unpopular.

Correct approach

The approach of having a variable tax depending on how much pollution cars cause is a sensible one and fits with the idea that "the polluter pays". Often the best way to modify the behaviour of a population is via taxes and we are starting to see the results. Sales of SUVs and 4x4s are down, while demand for the Toyota Prius is higher than higher. While it doesn't mean that gas guzzlers will disappear overnight, it will reduce their lifespan as they will become un-economical to maintain that little bit sooner. If applied correctly and in line with other policies such as improved public transport and sensible fuel duties then it should be a highly effective means to encourage the move to more fuel efficient means of transport.