UK motor industry trade group the Society of Motor Manufacturers and Traders (SMMT) has welcomed moves in Wednesday's government budget to cut corporation tax and extend R& D tax credits.

However, reducing average new car emissions to 100 g/km - stated as an 'objective' for government post-2012 - has sent a worrying message to car makers, in particular premium brands based in the UK.

"We fully support the need for action to reduce carbon emissions for road transport," said SMMT chief executive Christopher Macgowan. "However, we should also be clear that regulating the value-end of the car industry out of the UK is not the way to do it. This is a worrying statement from government."

The motor industry has done much to bridge the skills gap in recent years. However, SMMT is encouraged by further support to increase investment in education and skills by 2.5% a year in real terms on average between 2008-09 to 2010-11.

The 90% hike in VED (vehicle excise duty or 'road tax') for higher emitting band G cars over two years, will be accompanied by rises across all other sectors, other than bands B and A. SMMT is concerned by this revenue-raising measure, the arbitrary approach to changing a sensitive tax regime and the absence of any impact assessment to support the changes.

Unlike VED, company car tax has been characterised by stability and a long-term approach. This is welcomed by SMMT.

The budget also revealed parity for petrol and diesel models in VED rates, but did not extend the principle to the 3% penalty still applied to drivers of diesel company cars. This is disappointing, the SMMT said.

However, moves to discount cars capable of running on higher blend E85 bio-ethanol by 2% have been welcomed by car makers.

The SMMT is encouraging the government to introduce incentives for Euro 5 and subsequently Euro 6 cars as soon as possible. The revived Reduced Pollution Certificate deal for trucks meeting Euro 5 emission standards offers promising news for truck operators, and truck makers look forward to examining the detail of this proposal, it said.

The RPC will, if it works like the previous system, cut about GBP500 off the VED for a 44 tonne truck and smaller amounts from VED bills for lighter trucks.

The renewable transport fuels obligation (RTFO) is an important tool in an integrated approach to CO2 reduction. Biofuel duty breaks are therefore welcomed, but as government moves towards mandating higher 10 per cent blends of biofuel, the SMMT warns that this must be tied to internationally agreed quality standards.