Posts Tagged ‘VED’

Ministers claim the rate of evasion for Vehicle Excise Duty (VED) is 0.6%, the lowest level ever.

So assuming this rate is uniform across all types of vehicle, and looking just at cars, what does that mean in absolute terms?

At the end of June 2014 there were 29.7 million cars licensed in Great Britain, suggesting there were about 180,000 cars driving around without a tax disc.

(Of course, as of 1 October this year the paper tax disc was abolished, but not the tax.)

Using an average VED figure of £144 that means VED evasion is costing the country roughly £26 million a year.

Ministers say that the abolition of the physical tax disc is unlikely to change the rate of offending and in fact the DVLA “… has not relied on the paper tax disc in enforcement of vehicle excise duty for some time. The DVLA and the police largely rely on the DVLA’s electronic vehicle register and tools like the Automatic Number Plate Recognition cameras to ensure that payments have been made.”

Which sort of begs the question: if getting rid of the tax disc is such a good idea now why wasn’t it done ages ago?

P.S. Worth remembering that two-thirds of new cars registered in 2013 paid not VED in their first year.

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Almost 1.4 million new cars registered in Great Britain in 2013 paid nothing in Vehicle Excise Duty (VED) in their first year on the road.

This is almost two-thirds (63%) of the total of 2.2 million new cars registered.

The cars were exempt from VED because they emitted less than 131gCO2/km and fell into VED bands A-D.

In the first year on the road any vehicle that meets this target is zero rated for VED.

Things change from year two onwards when only those vehicles emitting less than 101gCO2/km (Band A) are completely exempt from VED.

However this still means that – assuming the rules stay the same – 324,000 cars bought last year will never be liable for VED.

This is a table of the VED bands and registration figures for each band for 2013.

VED Band CO2 Emissions Cars registered in 2013
A Up to 100g/km 324,000
B 101-110g/km 272,000
C 111-120g/km 430,000
D 121-130g/km 370,000
E 131-140g/km 301,000
F 141-150g/km 182,000
G 151-165g/km 153,000
H 166-175g/km 63,000
I 176-185g/km 33,000
J 186-200g/km 35,000
K 201-225g/km 18,000
L 226-255g/km 20,000
M Over 255g/km 10,000
TOTAL   2.2 million

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The Department for Transport has published a whole raft of data today including the Chancellor’s take from fuel duty between 1987 and 2012.

The numbers are not insignificant. Unadjusted for inflation the revenue rises from £7.7 billion back in 1987 to a peak of £27 billion in 2010. In 2012 the Treasury’s income from duty on hydrocarbons was £26.7 billion. The graph below tells the story.

Fuel duty revenue - 1987 to 2012

Over the same period annual VED payments by drivers have grown from £2.6 billion to £5.8 billion.


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The irony won’t be lost on motorists.

Even as we cope with an era of high fuel prices, and with predictions of significant traffic growth in the future, the Chancellor is confronted with a worrying drop off in fuel duty and VED revenue. The reason? The greening of the vehicle fleet brought about by more frugal petrol and diesel engines and the expected take-up of electric cars.

By 2029 the shortfall in motoring taxation will be about £13 billion (in today’s terms).

Unfortunately motorists should also be worried. Because however much we might like to think we are getting one over the Chancellor it seems implausible that he won’t come after with armed with a plan to maintain his income. Essentially there are three ways he could do so:

1)      Push up the rate of fuel duty significantly over and above inflation, perhaps by as much as 50% by 2029.

2)      Start taxing battery powered cars, but at the risk of stalling the decarbonisation of road transport as drivers take offence at paying large sums for new technology only to see the anticipated savings from lower running costs shrink.

3)      Introduce a whole new system of motoring taxation based on the idea of Pay As You Go (PAYG). That is, impose charges that are distance related but also bear some relation to levels of congestion. This would be an alternative to the current VED and fuel duty levies, not an addition to it.

The Institute for Fiscal Studies has no doubt that this third option is the one to go for. In a report commissioned by the RAC Foundation – Fuel for Thought: the what, why and how of motoring taxation – the IFS says PAYG would more closely associate charges to drivers with the ‘externalities’ they impose on the rest of society: air pollution, accidents, traffic jams, CO2 emissions amongst them.

This is a thorny subject but one which needs to be tackled. To be fair to the Chancellor he has already taken some tentative steps, announcing in Budget 2012 that the VED bandings would be reviewed to ensure drivers continued to make a ‘fair contribution’ to the public finances even as cars become more eco-friendly.

Amongst the 35 million drivers in Great Britain the price of fuel is arguably as common a talking point as that other national obsession, the weather. Given the recent record pump prices and the fact that transport is the single biggest area of household expenditure, this is unsurprising. It would be good if politicians devoted as much time to the subject as voters.

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