A vehicle excise tax (VED) increase for higher polluting vehicles expected in Wednesday’s UK Budget on the surface appears to be a sensible increase designed to encourage ‘greener’ choices coupled to a CO2 banding system which may roll out across Europe as a blueprint for carbon-based taxation system in coming years, according to an auto industry analyst.


But Global Insight’s Paul Newton cautioned in a research note that the logical scientific approach of addressing flaws in CO2 measurement bands and a cohesive approach to vehicle usage and taxation, coupled to holistic approach to the countries’ energy usage for industry and individual still appears a long way off.


Chancellor (finance minister) Gordon Brown is expected to increase VED for the most-polluting band G (225g/km) to GBP400 ($US777) in an attempt to change consumer buying habits.


In addition to the CO2-related VED increase, Brown will likely also introduce a new company car taxation scheme designed to close a loophole in the current regime that sees company car drivers opting for ‘employee car ownership schemes’ running cars without being penalised on the CO2 output, as with the current tax regime on traditional company car drivers.


Some ‘green’ campaigners say that this move is not enough, some arguing for an increase to £1,000 for the worst polluters. Friends of the Earth called for substantial measures to tackle climate change if Brown was to leave a “green legacy as chancellor” they told the BBC.


“However, industry and the beleaguered UK motorists are saying enough is enough,” Newton wrote. “VED is charged on top of VAT, the highest government-imposed fuel duty in Europe and congestion charging in some cities. According to the Freight Transport Association: ‘UK road transport is obliged to pay the highest rate of fuel duty in Europe at 47.1p per litre duty on diesel. This compares with an average for the rest of Europe of just 22p per litre.’ With diesel constituting about one-third of the running costs of a heavy goods vehicle, and with some high-mileage individual vehicles contributing road taxation of up to GBP30,000 per year, then these high prices are a very real problem which any increase in fuel duty could only worsen.”


Newton said the Chancellor’s move to nearly double VED on highly polluting vehicles will attempt to influence consumers to make greener choices, but reality is far more complex than that, and again places the burden of lowering emissions on the individual and avoids the much-needed root-and-branch overhaul of the UK transport taxation system and a cohesive energy strategy for the country as a whole.


“The increase in VED will directly affect vehicle leasing rates to businesses and hit residual values of affected models, further increasing costs associated with leasing to businesses, although these increases are relatively small still and are only likely to influence individuals on the margins of affordability and increase diesel penetration in these segments.


“The rise of large sports-utility vehicles (SUVs), often used as an emblem for climate change, will not be stopped in its tracks by this action.”


He added: “Band G, which largely consists of high-performance models and larger SUVs, are predominantly aspirational choices made by consumers who can absorb the few hundred pounds in difference the tax change accounts for. Therefore the increases will have little effect on these segments overall. Indeed, the high cost of fuel in the United Kingdom due to the high level of fuel duty paid to the government, has failed to stem the rise in high fuel-consuming and therefore high CO2-emitting vehicles in the past and it appears from this evidence that the VED tax increase is not significant enough to reach a tipping point.”


Newton said this argument in its simplest form appears to support increasing taxation further to reduce the numbers of these models on the roads, but the entire taxation system, and the CO2 banding system should be revisited (no current powertrain either gasoline (petrol), diesel or hybrid for sale in the United Kingdom meets band A, which is free from VED).


“If this taxation is an attempt to reduce emissions, and a potential blueprint for CO2-based taxation across Europe, then it requires further investigation and research to affect personal consumer decisions.


“Redressing of the bands to favour the lower emitting vehicles and the use of the additional revenue in further advancing environmentally friendly personal transportation technologies, or other such measures should ensue.


“Furthermore, it would seem logical to demand from government a cohesive, coherent energy usage policy, based on emissions for the whole country, addressing both individuals and businesses, something which still appears a long way off—while this all assumes that the entire ‘climate change’ debate has not been hijacked by political groups, wrested from the arena of true scientific debate in order to expedite political will and control.”