The tax disc works; don't fix it!
OPINION PIECE: ISSUED ON BEHALF OF BRISTOL STREET MOTORS
By Robert Forrester, Chief Executive of Vertu Motors plc, which owns Bristol Street Motors.
When bank customers bought product insurance policies that weren’t fit for purpose a massive investigation was launched and a gigantic compensation scheme was established. The banks had ‘mis-sold’ their policies. In the context of motor vehicle taxation, successive British Governments can be accused of attempting to do the same thing.
For years the British Government has taxed motor vehicles in three ways; vehicle excise duty (the tax disc); company car ‘benefit in kind’ and, of course, punitive fuel duties. For each of these taxes the amount charged for environmentally friendly vehicles has been lower in an attempt to encourage greener motoring. Millions of company car drivers have been the first to feel high taxation as the Government has started to change the benefit in kind tax to reduce the reward for choosing more efficient vehicles from the company car pool.
For example, an employee who made a conscious choice of a highly efficient British built Nissan Micra 1.2 5 door before April 2012 will pay an extra 5% in benefit in kind taxation after April 2013.* The public didn’t seem to notice; company car taxation is often seen as a perk anyway, but draconian tax changes to the efficient models they buy could be on the way!
Officials are working up a policy that will make the ‘pasty tax’ look like an inspired fiscal measure when British motorists realise its effect. George Osborne needs to head it off quickly before another budget is mired in a narrative of incompetence and unfairness.
Government officials have begun private discussions with the motoring industry and drivers’ groups about an overhaul of the tax disc rules. The reason for this is that people have followed their advice and bought low emission vehicles in their millions. Consequently, the tax revenue from the tax disc has reduced. Chloe Smith, a Treasury Minister, told the Commons recently that ministers are “considering whether Vehicle Excise Duty should be reformed to support the sustainability of public finances and to reflect the improvements in vehicle fuel efficiency”.
One option being considered would replace the annual tax on cars with a one-off up-front charge on new vehicles when they are sold.
Annual road tax for cars ranges from zero for those with the lowest CO2 emissions — which include electric and hybrid cars — to more than £400 for those with larger and less efficient petrol and diesel engines. Revenue from tax discs raises almost £6 billion a year for the Treasury, but official forecasts show that the revenue from the tax will fall as more people chose to drive low-emission cars.
Low-emission models like the Vauxhall Ampera, Honda Insight and the Nissan Leaf attract a zero rate of Vehicle Excise Duty. My company has been investing huge sums in the marketing and promotion of these advanced, high technology green vehicles and customers are starting to embrace the change. Salesmen advocate the lower taxation rates with gusto and customers appreciate the incentive. However, unlike Government officials, we like to promise what we can deliver and want to be certain that we are not misleading people.
Cars in other lower bands are great sellers too: Cars in Band E face a £135 charge, and include massively popular models such as Nissan Juke, Vauxhall Corsa, and even some models of Ford Focus.
Band H cars cost £275 in their first year and £195 a year afterwards. They include Vauxhall
The top band, M, costs £1,030 on first sale and £475 a year after that. They include most Range Rovers and the Porsche 911. These are models chosen on prestige and performance rather than price and buyers know in advance that they attract large tax penalties.
While electric and hybrid cars remain a minority but growing choice, conventional engine cars are also becoming greener as manufacturers deploy advanced technology in order to save customers money.
According to the Society of Motor Manufacturers and Traders, new cars registered in the UK last year were, on average, 18 per cent more fuel efficient than the average car on the road.
The Office of Budget Responsibility this year cut its forecast for VED revenues by £100 million a year from 2014/15 to reflect the move towards cleaner cars. It would cost the equivalent of £20 a year for every motorist in the country to make up the shortfall.
The fall in VED revenues is part of a long-term change caused by changes in engine technology and consumer choices, which will also reduce the sums the Treasury receives in fuel duty.
Calculations by the RAC Foundation earlier this month suggested that the combined effect of falling VED and fuel duty revenues will leave the Government with a £13 billion shortfall by 2029.
I am alarmed that a think tank with links to the Lib Dem part of the coalition, the Centre Forum think-tank, is drawing up proposals for the annual VED charge to be replaced with a single tax charge on new cars at the point of sale. The Daily Telegraph reported Tim Leunig, Centre Forum’s chief economist, as saying the plan would do more to promote low-emission cars while still raising revenue for the Treasury.
“Green taxes are supposed to change behaviour, but VED as it stands is not a good green tax, because there is little scope for motorists to change their behaviour except by getting rid of their car, which usually isn’t practical,” he said. “A good green tax would be a VED rate that is levied all up-front when a car is first bought.” This is demonstrably untrue. If the Tax Disc was so ineffective, why has the Treasury lost revenue and why have more green cars been sold?
Buying a new car is a big decision for motorists. It involves financial planning for up to five years. When motorists make these choices they expect the rules to remain consistent and the financial decisions to be based on accurate information. Hence the uproar when the banks mis-sold policies. When Governments offered these incentives they said nothing about them being temporary. When they offer explanations it is not to do with the core environmental arguments but about unsustainable public finances.
Ministers should deal with the root cause of the problem; poor long-term financial planning by politicians who promise too much and then run out of other people’s money.
Ministers should keep in mind an example of a retired pensioner couple who buy a small hatchback car. They make a detailed financial calculation of the purchase price and running costs, which includes the tax disc at a lower amount for an environmentally friendly the car. These are the very people a change in policy would penalise if it involved clawing back money lost because they choose to buy a ‘green’ vehicle. I’m confident the Government does not willingly have them in its sights but the direction of official advice would lead to them being financial casualties. The tax disc policy is working; don’t fix it.
CONTACT: Melanie Smith 01325 363436 firstname.lastname@example.org
Notes to Editors:
Vertu Motors plc (which trades under Bristol Street Motors, Macklin Motors, Vertu Honda and Bristol Street Motor Nation brands) was formed in late 2006 to acquire and consolidate UK motor retail businesses. The group was founded as a new entrant into the UK motor retail sector and is listed on the AIM market (UK:VTU)
Since flotation in December 2006, the group has established itself as a major player in the United Kingdom automotive retail sector. The group operated 78 outlets representing 17 manufacturers across the UK
*Nissan Micra 1.2 5 door ‘Tenka’ model is in tax band C and emits 115g/km CO2. Its boasts an average 55 mpg. It attracted a BIK rate of 10% in the tax year 2011-2012, this rises to 15% in the tax year 2013-2014
Robert Forrester, Chief Executive of Vertu Motors, parent company of Bristol Street Motors