Rachel Reeves will introduce a stealth tax on new petrol and diesel cars from next year which will see buyers hit with road tax costs of up to almost £5,500.
During her budget statement, the Chancellor said the Government will change first-year vehicle excise duty rates for new cars registered after April 1, 2025 to “strengthen incentives for the purchase of electric and zero-emission cars , widening the differences between zero emissions, hybrids and internal combustion. cars with engines.”
However, the budget document confirms that Reeves will try to force drivers to choose greener vehicles, not only by guaranteeing low VED rates in the first year for electric vehicles, but by doubling them for all cars emitting more than 76g/km of CO2.
One expert called it a “nudge, not a nudge” toward the electric car future.
Given that all traditional petrol and diesel cars on sale have higher emissions than this, it means buyers face an increase in first year road tax costs of between £270 and a staggering £5,490.
Chancellor’s new tax rise to give time to combustion engine cars: Budget document reveals Rachel Reeves WILL DOUBLE first-year VED rates for new petrol and diesel models, meaning tax costs circulation will reach £5,490
The Chancellor said the government will change first-year VED rates to “strengthen incentives to buy electric and zero-emission cars, widening the gap between zero-emission, hybrid and internal combustion engine cars.”
The budget document reveals that all zero-emission electric cars will pay the lowest tax rate for the first year (commonly known as “showroom tax”), of just £10.
This will remain in place until 2029-30 to incentivize drivers to switch to greener cars, and the Labor government will keep its stated promise to ban the sale of new petrol and diesel in 2030.
To also encourage motorists to buy hybrid models in the meantime, new examples with emissions between 1 and 50g/km CO2 (which will almost entirely be plug-in hybrid variants) next year will be subject to VED rates of £110 for the first year.
For plug-in and conventional hybrids emitting between 51 and 75g/km of CO2, the exhibition tax in 2025-26 will be £130.
But in a blatant move to discourage drivers from buying new petrol and diesel cars, the current first-year VED rates applied to these vehicles will be doubled.
As such, this will cause buyers to incur huge costs, particularly those who buy large family models and especially those who buy heavy, gas-guzzling SUVs and supercars.
“All other rates for cars emitting 76g/km CO2 or more will double from their current level by 2025-26,” the document states.
The lowest first year VED rate for petrol and diesel with emissions of 76-90g/km is currently around £135.
However, from April 1, this amount will double to £270.
Even for relatively economical new cars with internal combustion engines emitting between 101 and 110g/km of C02, first year road tax costs will rise to £390 from £195 previously.
| Emissions (g/km) CO2 | First year VED rate 2024-25 | First year VED rate 2025-26 |
|---|---|---|
| 0* | £0 | £10 |
| 1-50** | £10 | £110 |
| 51-75*** | £30 | £130 |
| 76-90 | £135 | £270 |
| 91-100 | £175 | £350 |
| 101-110 | £195 | £390 |
| 111-130 | £220 | £440 |
| 131-150 | £270 | £540 |
| 151-170 | £680 | £1,360 |
| 171-190 | £1,095 | £2,190 |
| 191-225 | £1,650 | £3,300 |
| 226-255 | £2,340 | £4,680 |
| More than 255 | £2,745 | £5,490 |
| *electric vehicles only **probably plug-in hybrids***probably conventional hybrids | ||
Families buying a modest Nissan Qashqai with a 1.3-litre mild-hybrid petrol engine will incur first-year VED costs of £540 from 1 April.
A family buying a new 1.3-litre mild hybrid petrol Nissan Qashqai (which emits 144g/km of CO2) would have to pay an extra £540 (up from £270) for the first year under the new rules.
However, the greatest pain will be suffered by the buyers of the most polluting vehicles.
Any petrol or diesel car with emissions of 191-225g/km CO2 will rise to £3,300 (from £1,650) for the first year. This would include a new mild hybrid diesel Range Rover, which has claimed CO2 emissions of 194g/km.
Buyers of a mild-hybrid diesel Range Rover emitting 194g/km of CO2 will be hit with an exhibition tax charge of £3,300.
High-performance cars will be greatly affected by the tax changes. A BMW M4, which emits between 226 and 230g/km of CO2, will cost £4,680 in tax in the first year.
The higher first-year VED rates apply to the most polluting new petrol and diesel cars that emit more than 255g/km of CO2, such as the Lamborghini Urus superSUV. Buyers from April 1 will be charged a staggering £5,490 in road tax alone for the first 12 months.
Initial VED costs for a new vehicle emitting 226-255g/km CO2 will increase to £4,680 (from £2,340). This would hook cars like BMW’s latest M4 high-performance coupe, which emits between 226 and 230 g/km of CO2.
The biggest increase will be for drivers who buy new petrol and diesel cars with CO2 emissions above 255g/km, which in the first year alone will cost a staggering £5,490 (up from £2,745). This will involve several supercars, as well as Lamborghini’s superSUV, the Urus.
The changes to VED will raise £400 million for the Treasury, Reeves told MPs during his evidence.
From the car’s second year, all models will be subject to a standard VED rate, which currently stands at £190 for petrol and diesel and £180 for hybrids. Electric vehicles are also expected to be subject to a lower standard rate starting next year.
Steve Gooding, director of the RAC Foundation, described the move as “less of a nudge and more of a nudge to change buyer behavior in the showroom.”
He said that while it might seem like an effective way to incentivize buyers to opt for electric vehicles, it could simply cause drivers to keep their older, more polluting cars for longer.
Nicholas Lyes, director of policy and standards at IAM RoadSmart, said increasing the VED on all but zero-emission vehicles in the first year “will hit those buying new conventional vehicles right out of the pocket”.
He added: “A better solution to incentivize the adoption of electric vehicles would have been to reduce VAT on the sale of new electric vehicles with a list price of £40,000 or less.”
Paul Barker, editor of motoring magazine Auto Express, also commented on the stealth tax on new petrol and diesel cars: “Doubling VED rates in the first year for anything over 76g/km along with big increases for Non-EV vehicles below that add notable cost, especially for highly polluting cars over 255g/km, which will now cost almost £5,500 on the first year’s VED alone.
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