New car sales tax proposed

New car sales
3 Oct, 2012 11:21am Jon Morgan

Vehicle Excise Duty could be replaced by an up-front fee of up to £23,000 for cars with the highest emissions

Vehicle Excise Duty could be scrapped and replaced with an up-front purchase tax, under plans drawn up by a Government advisor.

The purchase tax would still be based on a car's CO2 emissions, and would mean buyers of supercars and gas-guzzlers could see as much as £23,000 added to the list price of their vehicle.

But even small and medium sized cars could see sizeable lump sums added to their price, as a rate of £50 would be charged for every gram of CO2 a car produces over a pre-set point, which is proposed to be 94g/km.

The proposed scheme would still offer incentives for buyers to choose fuel efficient cars, though, as vehicles with emissions below a set point would actually get a discount on list price, thanks to Government subsidies.

Under the scheme, a £9,084 1.25-litre Ford Fiesta would see its list price increased to £10,734, while the price of a more efficient 1.6-litre diesel model would fall from £11,845 to £11,495.

The proposal has been drawn up by Tim Leunig of the Centre Forum think-tank, who has recently been appointed as a Government advisor.

Leunig argues that the new system would be more effective at persuading manufacturers to develop efficient cars than the VED system. He also claims the scheme would generate the same amount of revenue for the Treasury as the current regime, as the Government would be able to adjust the level of sales tax as the efficiency of new cars improves.

What do you think of the proposals? Would you be better off under the new scheme, or would it stop you from buying a new car? Tell us your views in the comments below...

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So, anyone with common sense would aim to buy a nearly new car. That said, demand and supply would mean that difference between the price of a new car and nearly new car would be smaller. So, new car first year depreciation should be lower making the purchase of a new car more attractive. Anyone have any thoughts on this?

I am not an expert on financing (please correct me if i am wrong), but I think most of the people that will be affected by this tax, purchase cars using leasing (since bmw,range rover, audi, mercedes and jaguar work this way) unless the car is paid up front and I think that most owners of these just change the car at the end of the lease period to keep the status quo of having the best car always. So i think it would be safe to assume that this value would spread on the payments and in the final value of the leasing purchase. Reducing the effect of this charge on the purchase of one. Hence leaving the market the way it is.
The only exception that i can think of is with pre-registered cars, since dealers pay for the full price of the car, so pre-registered cars prices should be higher. (But I am not an expert on this subject it would be interesting to see if anyone in here that works at one of the brands dealers could comment on this.

CarGeek: Almost. The absolute value of a nearly new car would rise as the buyer would not have to pay VED ever again. But it is doubtful that it would rise enough to actually reduce the price difference between a new and nearly new car.

Why not just add a penny or two, to the price of petrol, ring fence the monies raised and get rid of VED/road tax. Firstly there would be large savings in central administration/enforcement costs; secondly, people that drive the least green or drive high mileage would automatically contribute most to the upkeep of roads etc; and finally it would not punish the elderly and families who have a car out of necessity, but drive very few miles.

Another daft 'think tank' idea. Are these people actually sitting in a tank whilst they come up with these ideas? We need to stimulate British and wider industry not kick it in the teeth. Increase the price of fuel by the road tax - we're used to that going up regularly, we moan for a week or two and then get on with it - at least then gas guzzler drivers pay more. And older people and those who live in the country can select energy efficient vehicles and not get hit as badly? Still encourages the purchase of lower emission cars and effectively punishes those who choose to drive big wagons!

This won't change much, those who can afford a fast sportscar or a big luxury car for thats sake, can probably afford to pay the extra tax as well!

It would be nice for us to decide what we want to do on planet earth. However as we are all aware just how good goverment advisers are, we must be in safe hands knowing Tim Leunig. I mean just look at a picture of him!

I think we already pay sufficient fuel tax to cover the environmental damage

Surprisingly for a government think tank, this is actually a very good idea. Often due to new technology (stop/start, hybrid etc) fuel efficient cars are more expensive. Paying an extra £50 a year in road tax doesn't discourage people because the car is cheaper in the first place.

If you can make the efficient car cheaper to buy as well as cheaper to run then people will buy it.

It is also fairer to the owners of older, inefficient cars who are currently faced with excessive VED rates that are often higher than the value of the car. They are trapped because they cannot afford a new car. Scrapping good, but inefficient cars that usually do relatively low mileages is bad environmental policy.

There will be no change here. Nearly new cars will have paid the tax so will cost more. The price difference inflicted by the tax should mean that energy efficient cars remain cheaper.

Inefficient cars will have a higher list price and hence higher monthly charges. Inefficient cars tend to depreciate faster as there is less of a second hand market for them which means that lease rates are higher anyway.

True, but isn't it nice that their generosity means that those of us stuck with older cars will not pay tax.

Be very careful what you wish for....

As a great many people have said over the years, scrap vehicle road tax and add a few pence to a litre of fuel. That way what you pay in road tax is directly proportional to the mileage driven and economy of the vehicle. The bonus would be that no one could avoid paying road and administration costs would be reduced.

what people always seem to forget is that there aren't many high mileage Ferrari's and Aston Martins out there. A Prius doing 100,000 miles over 3 years as a company car does much more damage than CO2 wise than the Ferrari owner doing 4-5000 miles a year. Less efficient cars already cost more as you fill up more regularly. How many different ways do you need to tax the same thing?

Yet another lunatic suggestion from highly paid, non productive experts with high salaries and no consideration for industry and employment. Equally the assertion that the tax take would remain the same reminds me of every other promise made by think tanks and government. All result in increased tax take for the politicians to spend on more nonsensical schemes proposed by alleged experts.

So increasing road tax further will stimulate the British economy? Even George Osborne understands that fuel tax thwarts growth and he's utterly hopeless.

100,000 a year in a Prius? Surely you'd die of boredom?

Seems like a very good way for the government to get its money up front so to speak. They would get a considerable tax revenue in the short term. JUst how long before they find they need to impose an admin charge to cover licensing records etc. They could call that VED by another name and get moneies twice.
How will it work with second hand vehicles as the first owners will need to get back at least some of the initial outlay. Second hand prices will have to rocket. Imagine a 2 year old car on the forecourt with say half the initial costs still in its price but with zero VED compared with a three year old car with normal annual VED.
If you think this through the government will have to impose this tax at every sales point so there will be a charge for all vehicles new or second hand based on expected life and emmisions.

If you look at the 'whole life' CO2 emmisions for a Prius including manufacture, use and disposal (including replacement batteries every 5 or 6 years) you will find it has a higher CO2 figure than most 'standard' diesels and many of the more modern fuel efficient petrol cars.
Hybrids are currently more of a sales exercise than a true eco answer - discuss!

I Think it is a good idea because i have never bought a brand new car & i probably would never buy a brand new car for the simple fact that you stand to lose to much money in the first place, i'd much prefer to buy a car that's 2 to 3 years old which has bared most of it's loss already, so this would suit people with older model cars which is great news for most of us not having to pay for (VED) road tax. Any Idea to reduce the tax we pay for the majority of us I LIKE as for people who can afford to buy brand new cars must be able to pay slightly more TAX to, I think we pay more than enough TAX just in our FUEL never mind the MANY other ways we're TAXED & don't remind me about INSURANCE what a scam that is.

What about those of us who can't afford new car prices but buy used and thereby help the used car trade which also employs people and pays taxes, rents etc?

One problem is that the rolling road estimates of emissions are seriously flawed and apparently low emission vehicles (by the VCA) 'lose' a higher proportion of their efficiency 'on the road' than those with higher official figures (this has been proved statistically). This leads me to doubt the true validity of the exercise.

Another government plan to "rip off the motorist" pathetic, it will just cut the number of new cars sales in the high bands and encourage more purchases of cars in the same bracket a few months old.

This is what it is all about:

"He also claims the scheme would generate the same amount of revenue for the Treasury as the current regime, as the Government would be able to adjust the level of sales tax as the efficiency of new cars improves."

If the efficiency of new cars improves, there is nothing to say there will be a downward adjustment... In fact, successive governments have a tarnished record of making upward adjustments.


yet another ill thought out raid on motorists they really think this wont lose more votes

excellent idea...but government wont want to upset the civil servants....more votes lost

What planet do these people come from, the only things government, past and presnt, are good at are thinking of are different ways to skin the British public of their hard earned cash, we don't all get a M.P wage. Should they decide to encourage people to spend their hard earned cash on new cars they should be showing some sort of initiative like reducing VAT or some sort of reduction for those who are willing to buy lower emission cars, not increase the cost, what an idiot !

"The proposal has been drawn up by Tim Leunig"
Leunig is pronounced as 'Looney', which is exactly what this plan is

I agree with Mister D. It would also mean that people with a heavy right foot would have to think twice before giving it the boot. The problem with loading the price of new cars is that it would very likely have a negative impact on new car sales - which won't do too much to help the economy...

put it on fuel, keep it simple stupid!!

Tim Leunig has written some articles:-
Here is an Abstract from an article by Tim Leunig.
‘Social savings’ is a cliometric concept to measure the benefit
to society of technological improvements. The terms are defined, and the
relationship between social savings and consumer surplus, total factor
productivity and growth accounting measures is discussed. We critically
outline Fogel's original application of social savings to American
railroads in 1890,
So there we have it Tim is right, to quote him again "We will be using Fogel's original application to American Railroads 1890, for social savings".
Seeing that the government has now cost us anything from £40 million to £100 million pounds on screwing up the railway deals, I bet Fogel didn't allow for that in his calculations and seeing that no one can predict the future, why are the government employing someone that quotes facts from America back in 1890. To me Tim clearly has no ideas of his own and relies on ideas dating back to 1890 and with our prime ministers knowledge of history recently shown lacking, 1890 must seems very up todate for him. Shame Tim didn't look at the price of cars and gas in America as Mr Fogel's application would have been firmly jammed up his own exhaust pipe.

Hi Soren if you read what Tim is proposing its £50 per gram of Co2 over 94 grms. example quoted fiesta 1.25 road tax now £100 a year. Tax increase £1,650. I make that 16.5 years of road tax in advance yes avery good idea for the government but a very bad idea for the motorist. bye

I've always thought why not put it on fuel, those who use the most, pay the most - quick calculation on a back of a fag packet show that each year VED raises about £6 billion and 32 billion litres of fuel are sold, so they would have to add 25p to each litre to generate the equivalent revenue.

So with a car that does 40 mpg and 12K annual mileage, the additional cost would be £340, less say £195 for the car tax saving and the nett extra cost would be £145

For a car with 60 mpg, £30 car tax the nett £195 - shows how it doesn't always work out the way you want.

I am fortunate and now can cycle to work and take a shower, this is saving me 4,000 miles a year and a small fortune.

But it seems a good way to go, just need to sort out the road freight association

What do they think will happen to new car sales?It was only 3 years ago they were giving money away with the scrappage scheme to boost sales, now they are on about killing it.
Don't us motorists pay enough tax on petrol already.

Plus they are on about road tolls, where will it end.

I cannot see this scheme going ahead. It will cost the government money, not raise revenue. The headline above is misleading, it should say "Fuel Efficient Cars to be Subsidised"

Currently - £9,084 for 1.25-litre Ford Fiesta, £2,761 cheaper than the 1.6-litre diesel at £11,845. It's clear why people buy the petrol model.

Future - £10,734, only £761 cheaper than the diesel at £11,495. The diesel becomes a no-brainer.

So, hands up, who would not buy the SUBSIDISED car? Or indeed ANY subsidised car?

I don't understand why the fixation is just on CO2 levels when vehicles also pump out other harmful emissions such as NOx, particulate matter such as soot and SOx. Diesels can emit particularly harmful emissions yet they are penalized less because the CO2 level is lower than a petrol, however the NOx, soot and/or SOx levels may be higher in a diesel. I think the Government should hit the reset button with emissions levels and look at the full picture and then perhaps grade cars on the combination of emissions to determine what tax they would like to inflict. One more thing, perhaps the Government would also like to look at the emissions in producing new cars and tax the manufacturers if the production of a certain vehicle has a high environmental footprint such as hybrid cars, for example. Are the overall cleaner cars the bog standard petrol variety after all?

A large one off charge at the point of purchase could have the opposite of the intended effect, by slowing down the purchase new more efficiant cars. It might be more attractive to keep your old car running, rather than buying new.

The only silver lining to this proposal is that it would tax buses off the road. It would apply to buses, wouldn't it ?

At what point will breathing be taxed ? Presumably athletes would be the worst culprits for CO2 emissions. Couch potatoes would be the winners. And if you stayed at home on the dole rather than buying a car to drive to work, you would be the dream citizen. Mind you, anyone who works in the car industry might well be at home on the dole anyway, instead of making those evil pollution devices.
Am I being cynical ?

stickm em up your arse, we pay mega tax now fool.

I have not looked too much into this, what I do know is that as manufacturers "get better" at emissions the government will want someway of consistently moving the goal posts.

Its all about tax take which isnt now enough. The gov has now lost the CO2 game to manufacturers. Its time to reduce the CO2 subsidies:

- the minimum road tax should be 100pds as all cars occupy road space, but the max should not increase
- the company car tax scam should be ended - time to go back to the original benefit figure of 22% of list price. Drivers of 30K diesel Mercs and BMWs are laughing right now
- no sales tax increase. It will reduce manufacturing and jobs in UK as we produce a high proportion of larger vehicles - trust a gov advisor to come up with something that will damage UK industry!.

If this isnt enough, the logical thing is to put it on fuel. Fuel is so costly now that its already a decider on new cars and no further CO2 subsidy is necessary. No need for expensive satellite trackers and mileage calculators in car.

Why do the government continue to let these crazy think tanks give them ideas. This Tim clearly lives on a different planet when not coming up with stupid ideas. Motorists already contribute over £40billion each year in direct taxes on motorist (VED, fuel duty, VAT on fuel and disgracefully VAT on fuel duty) before we even count the indirect stuff. We already pay over 10 times what is spent on highways so you know where you can stick your stupid idea Tim.

Quit pretending and do what it is you want to do, mandate what vehicle people will drive. Pick the car and be done with it. Then your accendancy to totaltarialism shall be complete.

What an idiot idea. One only needs to look at the massive progress that auto companies have made with fuel economy to realise that they are doing their utmost to provide more efficient cars. It cannot be effective, and is only another revenue earner, proposed at a time when consumers are hurting. Zero marks on this one.
Also, an increase on the price of petrol penalises everyone, not just guzzlers. If this tax would up the price of a silly little Fiesta - it's a joke. If you want to penalise something like a Rolls - maybe there is a justification. Like most green ideas, it is unbalanced.

Why not just impose a tax of, say 60% on fuel, so that those who travel the most pay the most tax! What a great idea!

Another government
lackey trying to justify his big wage, and I can't believe a serious
driver would advocate adding anything to the price of our over priced
petrol. Any extra costs or tax should go on the car, why should the
majority of people who cannot afford to buy new cars be saddled with
an extra petrol tax to subsidise well off new car buyers?

Because we are all using the same road space and and get the same quality of infrastructure. 'Pay on Use' (i.e. fuel tax) is the fairest way for everyone. Anyone who buys an expensive car already pays their fair share in the 20% of VAT, so on a £100,000 car they are already paying circa £20k into the governments coffers that you aren't. They then also shell out more on fuel duty/vat per mile than you probably are.

I do not see for one moment why someone who buys a new Aston Martin, driving it for about 2-3000 miles per annum (that's about the average), has contributed all that VAT, and also pays through the pumps should subsidise you or I any more than that. Unless of course you are filled with envy and can't see the illogicality of your argument.

They are going to do so. The plans are already there and the discussions have taken place.

I would suggest that the leasing companies would be looking for any of this additional payment upfront, because unlike VAT none of it will be recoverable. If the customer doesn't honour the agreement, and the additional cost is factored into the rentals then the leasing companies could be looking at some very big black holes. However, any reduction on the purchase price would almost certainly be factored in.

LIST prices do not affect the rentals on their own, and the importance of it is overstated. Any lease rental is essentially based on the depreciation (Vehice Cost minus Residual Value) + interest on the capital.

Inefficiency of cars is important .... or not. That entirely depends on the sector any vehicle sits in. Take for example the Honda Civic. If the 5dr family hatchback version is inefficient then that will have a heavier weighting on the residual value. However, the 3dr Type-R will be much less affected because the buyers of that model are less focused on efficiency and much more on performance.

I think punctuation is a really good idea.

Administering that on used cars would be almost impossible and impossibly expensive ... unless they made private car sales illegal (shoot, sorry I think I just gave the Bureauctrats another idea ...)

Some of this tax would be filtered down into the used car values, just as VAT is currently.