A response to the consultation exercise on variable Vehicle Excise Duty

 

Introduction

Why Is The ABD Interested In The VED Consultation Document?

We wish to ensure the fairness and balance of the burden of taxation which falls on the motorist, as well as drawing attention to its high overall level, especially in relation to what is spent on transport.

We are deeply concerned about the unscientific way in which alleged environmental problems are being used as justification for measures aimed at both increasing this burden of taxation and at restricting and obstructing drivers.

In all of these contexts, we feel that the proposals for graduated VED are unfair, unnecessary and likely to result in no significant environmental benefits.

 

1. General Points

1.1 The Stated Purpose of VED is Contradicted by These Proposals

Section 2.11 of the consultation paper details six reasons why VED should continue to exist, as opposed to being loaded on to fuel tax. Two relate to its contribution to the registration, insurance and MoT regulations. A further two are about the desirability of retaining a level of fixed cost in car ownership. The fifth concerns HGVs and the sixth deals in part with the undesirability of loading all motoring taxes onto variable (fuel) taxes.

These are all arguments for a FIXED level of VED and consequently are arguments AGAINST varying this element of taxation other than for HGVs and disabled drivers.

The debate about VED versus fuel tax (not fully dealt with in the consultation) has long existed between low mileage drivers who feel that fixed VED is unfair and those who live in remote communities who are forced to travel further for their essential journeys than those who live in cities. Loading the value of VED onto fuel tax, they argue, would unfairly penalise them.

Thus, a fair balance has been struck between these two groups of users — a balance between a fixed VED to keep their car on the road and a variable fuel tax based on the usage and fuel economy of their vehicle.

To vary the VED with the fuel consumption or emissions of the vehicle would upset the fairness of this balance, with the high mileage user of a smaller car benefiting and the low mileage user who requires a large vehicle for towing or carrying passengers and luggage being unreasonably penalised.

The whole principle of VED is thus eroded by the introduction of any variability into its application.

1.2 The Implications of Revenue Neutrality

The proposed rates of VED are not discussed in the document. Specifically, it does not say whether the Treasury has an objective of retaining revenue neutrality over the short or the long term. This is very significant.

If the Treasury is seeking to preserve its revenue stream from VED, then it is clear that as more people buy the "smaller and cleaner" cars encouraged by the proposed change and more of the older cars which do not qualify for reductions are scrapped, then the overall rates will increase to the point where the VED for "small and clean" cars will rise to somewhere around the current £150 level whilst rates for larger vehicles and the few remaining older ones will increase very substantially.

1.3 The Unfair and Damaging Effects of Punitive VED Rates on Large Vehicles

There is a potential time bomb built in to these proposals which could see punitive VED rates for larger engined vehicles, which would have a devastating effect on:

 

2. Specific Points

2.1 The Carbon Dioxide Variable

If one purpose of motor taxation is to help reduce carbon dioxide emissions, then surely the tax to use is one that correlates precisely to the fuel burned. This is fuel tax.

To introduce a variation in fixed taxation which is correlated to fuel consumption is a non progressive tax in relation to carbon dioxide emissions because a high mileage small car will emit more than a large car which is retained by the owner for occasional but essential off road and towing use.

Indeed, this owner may well end up being discouraged from owning a second, more economical vehicle by the increased tax on his first, and so end up emitting more carbon dioxide overall.

The following effects will be experienced from the introduction of CO2 based VED variability:

We would therefore oppose carbon based VED graduations altogether for all these reasons, but, if they are introduced for political reasons in the face of rational arguments, they must be capped to limit the damage to those who need heavy vehicles and the relationship between these and smaller cars should be fixed, removing the future uncertainty.

2.2 Emissions standards

The consultation document shows the gross tonnages of the various pollutants emitted in the UK and the percentage deriving from motor vehicles. It does not mention, however, the absolute levels of these pollutants in the atmosphere or the current rate of decline of emissions from motor vehicles due to the improved emission standards in the vehicle parc. When these factors are taken into account, the acceleration of exhaust emission improvements is not a priority (see Appendix 1, ABD paper on air quality levels)

Offering discounts for meeting EU 3 and EU 4 could increase sales of vehicles meeting this standard in the short term. It is unlikely, though, that a small reduction in VED would encourage people to change early — we are comparing an expenditure of thousands with the saving of £50 for one year.

In the long run, all vehicles would achieve the standards and, in order to maintain revenue, the government would push up the overall VED levels and older vehicles would then suffer from serious residual value problems, making it harder for customers driving non compliant cars to change.

Discounts for achieving emissions standards would achieve no significant environmental benefit and would create significant unfairness and unnecessary complication.

2.3 Engine capacity bands for existing cars

There is no justifyable case for retrospectively and regressively varying the tax rates on existing vehicles. As described above, such a move would be:

Of course, a larger engined vehicle may well even have lower actual fuel consumption (mpg), due to better design, than a smaller-engined vehicle. If the DVLA proposes to tax the owner of such a vehicle at a higher level than for a less economical smaller engined car, it will be a laughing stock.

2.4 VED Supplement for diesels

Since diesels are more efficient in terms of CO2 emissions, it is only on the basis of their particulate emissions that there is any case for discouraging their use with higher VED.

Particulates have only been identified as a problem relatively recently and therefore measures to clean up diesels are not as advanced as those on petrol engines. This is no reason to introduce a surcharge on diesels which will last indefinitely — these engines produce negligible amounts of several petrol pollutants and the particulate performance is rapidly improving.

We are in serious danger of sending mixed and confusing messages to the public — now, we will be saying "Don't use diesel because of emissions", but in five years time when diesel is as clean as petrol we will then change the message to "do use diesel because of CO2."

2.5 Age related tax on existing vehicles

Such a tax would be unlikely to benefit new car sales as users of pre 1992 vehicles (the highest bracket) would be unlikely to be trading in for a new vehicle.

Rather, it would undermine the residual value of such cars and possibly prevent owners trading up to a newer vehicle.

It would also be heavily resisted by owners of vehicles which complied with the emissions early but who do not benefit from the lower tax rate. These vehicles and owners will effectively be penalised for meeting environmental standards early.

This proposal would increase the anger and frustration of classic car owners who do not benefit from VED exemption, seriously escalating their VED payments.

 

Conclusion

There is no environmental justification for embarking on an unpopular, confusing and hugely complex reform of the VED system.

 


Top  ABD Home Page     Government Policy Page    Join    Contact the ABD