Car tax warning: 20 percent increase could be imposed ahead of petrol and diesel ban

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Car tax vehicle excise duty (VED) costs could increase by 20 percent a year from 2025 if the government opts for a 2030 ban on combustion vehicles. The higher charges could be introduced to put prospective buyers off purchasing higher emissions models five years before the ban is launched.

This will enable a phased transition between combustion models and electric instead of a sudden change which is likely to leave many cities unprepared.

The report from Cambridge Econometrics and Greenpeace revealed an assumption that a 2030 scenario would include changes to car tax.

The report said: “It is assumed that first-year Vehicle Excise Duty is gradually increased from 2025.

“As this is banded by CO2, it acts to discourage sales of higher emission cars and vans.”

Cambridge Econometrics say that a 20 percent rise for models emitting 200g CO2/km would equate to an extra £261 in charges across the first year.

Meanwhile, costs would be just £27 more for lower pollution models emitting just 100g COP2/km.

The AA says models emitting just 100g/km are currently charged VED at £135 for their first year.

Under the new model predicted by Cambridge Econometrics, prices would increase to £162 in 2025 and £194 just one year later.

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Prices would then increase to £232 in 2027 before small yearly increases up to £333 by 2029.

This would equate to an increase of £198 or 147 percent from the current figures which will still be in use by 2024.

Speaking to, Jack Cousens, head of roads policy at the AA said: “Any tax increase is unwelcome, and the prospect of a £200 increase over five years will certainly turn heads.

“However, the first-year VED rate is wrapped up in the price of a new car so it’s intended impact is often lost.

“Should someone buy a car on a four year PCP finance deal, that tax hike is spread over the course of the agreement and could mean paying an extra £5 a month.

“Rather than focus on increasing taxes to drive the switch to electric cars, offering more generous grants or scrapping the VAT on new EVs would have more success.”

Cambridge Econometrics say petrol hybrid models will see just a £2 rise on their overall first-year VED costs while battery electric vehicles will see no increases.

The research group said that if buyers chose a lower emission car next time they switch they should be guaranteed to see savings on first-year VED.

However, the report claims that the transition to electric and sustainable models will lead to a “substantial decline” in Government revenues.

This is because of an expected reduction in fall duty revenue and VED charges as more people make the switch.

Doug Parr, Policy Director at Greenpeace said tax incentives were likely to be offered to electric car buyers to encourage motorists to switch.

He told “The transition to electric vehicles needs to come with policies that give consumers confidence to make the switch as well as encourage them to do so.

“That means policies that see a rapid roll-out of charging infrastructure, and encouragement for manufacturers to ramp up production that drives down prices and accelerate sales, and possibly tax incentives that make it cheaper to register a new low emission vehicle and slightly more expensive to register a new polluting one.

“Ultimately the inevitable drop in prices of electric cars resulting from a 2030 phase-out, and the significantly lower cost of running one, means that those going green when buying a new car will be quids in.”

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