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Budget 2006: VED changes, RTFO targets announced

Wed 22 March 2006 View all news

The 2006 Budget introduced further incentives designed to encourage a shift to lower carbon vehicles and fuels. Road tax changes increased the rate of duty on the least efficient cars and interim targets for the Renewable Transport Fuel Obligation were announced.

The LowCVP issued a response to the VED changes, drawing attention to the fact that the colour-coded fuel economy label will be revised to reflect the new ‘Band G’ and the changes in tax rates – see link below.

The key measures relating to lower carbon transport were:

* Vehicle excise duty (VED) changes including the introduction of a new higher band of graduated VED (Band ‘G’) for the most polluting new cars, set at £210 for petrol cars. Reductions for lower carbon cars, including zero-rating for the ‘A’ Band.

* Interim targets for the Renewable Transport Fuel Obligation (RTFO) have been set at 2.5 per cent in 2008-09 and 3.75 per cent in 2009-10.

* The biofuels duty incentive is maintained at 20 pence per litre in 2008-09. The RTFO buy-out price will be set at 15 pence per litre for 2008-09. The combination of duty incentive and buy-out price is also guaranteed at 35 pence per litre for 2009-10 but will reduce to 30 pence per litre in 2010-1.

* The Goverment has also now applied to the European Commission for State Aids approval for an Enhanced Capital Allowance scheme for the cleanest biofuels production plant.

* Company car tax: The threshold for the minimum charge rate for calculating benefit-in-kind from company cars will be reduced from 140g of CO2 per kilometre to 135g of CO2 per kilometre from 2008-09. The Budget also announced a new lower 10 per cent band from 2008-09 for company cars with CO2 of 120g per kilometre or less.

* Report on the second stage of the company car tax evaluation is published alongside the Budget which says that, as a result of the reforms, CO2 emissions were 0.2 to 0.3 million tonnes of carbon (MtC) lower in 2005 and expected to increase to between 0.35 and 0.65MtC a year by 2010. (Link below)

* Further consideration will be given to modernising the capital allowance regime for business cars, with the publication of a consultation document 'Modernising tax relief for business expenditure on cars'. (Link below).

* Road fuel duties: An inflation-only increase is deferred to 1 September 2006.

* Road fuel duty rates on liquefied petroleum gas (LPG) will increase by the equivalent of 2.25 pence per litre to reduce the differential with the main rates by 1 pence per litre. The Treasury says this “will reflect more accurately the environmental benefits of this fuel". Duty rates on natural gas will increase by the equivalent of 1.25 pence per litre, maintaining the differential with the main rates.

* A new National Institute of Energy Technologies will be set up, in partnership with the private sector, intended to better leverage the substantial public sector funding of energy research. The Institute will focus particularly on delivering low carbon and supply-secure energy sources.

Responding to the Budget, the Society of Motor Manufacturers and Traders (SMMT) said that the road tax changes "send a worrying message to consumers and car makers about the future of motoring taxes".

The SMMT chief executive, Christopher Macgowan, said: "Stability, certainty and long-term must be the watchwords when changing sensitive tax instruments...None appear to have been applied here." The SMMT also expressed concern about a "budget-by-budget bidding war on road tax changes".

The campaign group Transport2000 said that "the Chancellor has listened to environmentalists but only with half an ear."

The organisation described the Chancellor’s new increased rates of Vehicle Excise Duty for high carbon cars as 'derisory' and suggested that they would make little difference to car buying habits. Stephen Joseph, Director, said: “Clearly this is a well intentioned step on the road to influencing car choice but for it to work we need to see a much greater tax difference between small and large cars.”

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Budget 2006: VED changes, RTFO targets announced

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