TaxPersonal TaxGreen cars will impact Treasury’s coffers

Green cars will impact Treasury’s coffers

The growing number of green cars on Britain's roads is already seeing a growing number exempt from vehicle excise duty

THE RISING NUMBER of green cars and other vehicles will leave a £13bn shortfall in motoring taxes by the end of the next decade, despite an expected 44% rise in traffic.

The predictions were made by the Institute for Fiscal Studies, an independent think tank, and based its analysis on the government’s own forecasts, showing that by 2029, fuel duty will contribute 1.1% GDP, compared with 1.7% today. Fuel excise duty will fall to 0.1% from 0.3%.

Tax receipts stand at £38bn per annum, approximately 7% of Treasury income. The lost revenue is equivalent to increasing the basic rate of income tax from 20p to 23.4p, VAT to 22.7% or raising fuel duty by more than 50%, according to the report.

Owners of the lowest-emission vehicles pay no road tax at all, while the latest data shows more than 65,000 new cars sold last year were exempt from vehicle excise duty completely because their emissions were less than 100 grams of carbon dioxide per kilometre.

The problem has concerned Treasury officials, leading to the chancellor to announce a review of vehicle excise duty in his March Budget.

Car manufacturers have invested significantly in green technology, including hydrogen power cells, electric motors, hybrids and ultra-lightweight materials in order to remain in step with standards expected around the world, with much of the car industry in Europe now achieving emissions below 130g/km.

Stephen Glaister, director of the RAC Foundation, which commissioned the report told the Financial Times: “We have to put roads on the same basis as other utilities, such as water, where the revenues are reinvested to ensure a decent level of service.”

The IFS concludes in its report that the government will at some stage have to introduce some form of road charging in the future, with congestion set to worsen on Britain’s roads in many areas.

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