Budget 2017: VED hike pollutes diesel cars' future

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Chancellor Philip Hammond targeted diesel vehicles in a Budget speech where he emphasised how the tax system can “play an important role in protecting our environment”.

As promised in the Spring Budget, the Chancellor has penalised diesel vehicles, with tax treatments aimed at achieving the government’s air quality goals. With diesel becoming less attractive after each Budget, will companies and fleets send their diesel vehicle plans to the scrapyard?

When an unusually jestful Chancellor cracks Top Gear quips and invests in electric vehicles, tax measures curtailing diesel vehicles should not come as a surprise.

Vehicle Excise Duty

Influenced by the National Air Quality Plan published in July, diesel cars that do not meet the Real Driving Emissions Step 2 (RDE2) standards will move up an emissions band. These Vehicle Excise Duty (VED) rate changes apply to vehicles registered from April 2018.

Diesel cars caught by this tax will finance the £220m the government has put aside for the new Clean Air Fund.

Hammond also added another dent to the attractiveness of company cars. From 6 April next year, the diesel supplement in the existing company car tax is set to increase from 3% to 4%.

But not all is lost for diesel vehicles. Encouraging manufacturers, Hammond added: “Drivers buying a new car will be able to avoid this charge as soon as manufacturers bring forward the next-generation cleaner diesels that we all want to see.”

While Hammond’s environment-inspired attack on diesel vehicles was welcomed by the environment food and rural affairs committee, commentators such as car finance expert Graham Hill questioned whether the VED hike was “out of genuine concern for the environment or just a way to increase revenues from already overtaxed motorists”.  

The future of cars

Since the word “future” appeared 33 times during the speech, Hammond’s vision for vehicles naturally veered on the side of innovation and all things electric. Compounding this, the Chancellor pledged an extra £100m in plug-in-car grant, and £40m in charging R&D.

Hammond also clarified the benefit-in-kind position for those that charge their electric vehicles at work. From next year, electric car owners will not face a charge. But this confirmed what many had already assumed was the case.

While the Chancellor sees the future of cars as electric and driverless, Rodney Bonnard, UK insurance leader at EY, said the Budget’s autonomous ambition may make insurers uneasy. “When cars are fully autonomous, who is responsible for a crash? Will customers and insurers look to the car makers, and therefore expect them to package insurance with the car itself?”

Elsewhere, the government continued its fuel duty freeze, which has been the case since the formation of the coalition government. As reported earlier on AccountingWEB, an increase in fuel duty by RPI at 3.9% would be expected to cost just over £1bn in 2018-19, according to ONS figures.

The Autumn Budget's documents also show VED rates for vehicles registered after April 2018 will increase in line with RPI. The fuel benefit charge for company cars will also increase by RPI. 

About Richard Hattersley

Richard is AccountingWEB's practice correspondent. If you have any comments or suggestions for us get in touch.

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23rd Nov 2017 15:35

This just in. Reaction from Alastair Kendrick, a director at MHA MacIntyre Hudson:

This is possibly better than expected but is cheap swipe at diesel car drivers when they are already feeling the pinch.

We are just seeing a Government that previously endorsed diesel change their mind and the poor motorist is now impacted

I really feel, though, the story is that there is no reversal to the levels of benefit in kind on cars despite pressure from the trade bodies. A company car is now an expensive luxury. Hammond needs to appreciate some people need a car for their work and the taxation burden is biting.

Thanks (1)