Proposed government road tax changes - right idea, wrong method

Government plans to penalise cars emitting high levels of CO2, though well-intentioned, are likely to prove ineffective and unnecessarily complicated.

According to a Treasury paper, it is proposing to introduce an additional purchase tax of £2,000 for cars emitting over 255 g/km of CO2 at the next budget. Now cleangreencars.co.uk can answer the two most important questions –does the new band make sense and how many cars will be affected?

cleangreencars.co.uk has long argued the need for a new Band H – at present the owner of a Renault Espace 2.0T Auto emitting 234 g/km of CO2 pays the same tax as the owner of a Range Rover Supercharged with 376 g/km of CO2. Sales of cars emitting over 275g/km of CO2 actually rose by 19.2% in the first half of 2007, as luxury car buyers have no incentive to choose lower emission vehicles at present. Almost all their possible choices are in Band G, so they might as well get hung for a sheep as for a lamb. However, our idea is for an increased road tax figure of £500, but payable throughout the car’s life.

The government’s plan is missing the point: on a £50,000 luxury car most buyers spend more than £2,000 on options already, so an extra £2,000 on purchase tax is neither here nor there. What stops people buying medium-sized cars just over the current Band G limit of 225g/km is the sure knowledge that it will cost them a great deal of money come resale time (for example, a Ford Mondeo 2.5 Ghia X auto that falls into Band G loses approximately £1,500 more in depreciation than the Ford Mondeo 2.0 Ghia X auto in Band F). With a road tax figure of £500 for Band H, the difference in resale value on a more expensive luxury car would be much higher – at least £3,000. Thus a simple increase in road tax would have a bigger impact than a complex extra purchase tax.

However, our research shows that the CO2 figure of the proposed Band H is about right. Earlier this year, cleangreencars.co.uk suggested the immediate introduction of a Band H set at 275 g/km as that would enable the most economical versions of most luxury cars to escape the top rate of tax. However, as the government’s proposed tax will not come into force until at least 2008, and CO2 figures are steadily falling for a given engine size, the net effect will be almost the same by the time the tax comes into force.

Said Jay Nagley of cleangreencars.co.uk, “We support the idea of penalising cars that emit high levels of CO2, but there is a far easier and more effective way of doing so. The irony is that the government already has the right tool to hand – graduated road tax.”

Examples of models split by the new tax bands

proposed Band G
BMW 335i
Audi A6 3.2
Land Rover Discovery TDV6
Mercedes E350

proposed Band H
BMW M3
Audi A6 4.2
Range Rover TDV8
Mercedes E500