Country:United Kingdom
Policy status:Superseded
Date Effective:2001
Policy Type:Economic Instruments>Fiscal/financial incentives>Taxes
Policy Target:Transport>Passenger, Transport, Transport>Freight
Agency:Driver and Vehicle Licensing Agency

All cars in the UK are subject to an annual tax called the Vehicle Excise Duty (VED). Before 2001, Vehicle Excise Duty (VED) was the same flat rate for all cars. In March 2001, the VED was reformed to incentivise fuel-efficient, low-carbon vehicles and to send a clear environmental signal to motorists that driving less fuel efficient vehicles will be more expensive. Under this scheme, cars registered from March 2001 onwards are placed into VED rate bands according to their CO2 emissions. Within each band, alternatively fuelled cars, including hybrid vehicles, benefit from a small discount of GBP5 to GBP10, while diesel cars with lower carbon dioxide emission rates than similar petrol cars pay a small supplement to compensate for the fact that diesel cars may emit higher levels of particulates and other local air pollutants such as NOx. The excise scheme is revenue-neutral. Further amendments to the scheme were made in Budget 2002, with the introduction of a new low carbon VED rate for cars that emit less than 120 g/km of CO2. This increased the VED differential between the least and most polluting cars to up to GBP100 per year. Under Budget 2002 the rate of VED for cars producing less than 120 g/km CO2 was £60/year for cars using alternative fuel, GBP70/year for cars using petrol and GBP80/year for cars using diesel. In 2006, the bands ranged from A to G, classified as follows in CO2 emissions in g/km: A: 0-100; B: 101-120; C: 121-150; D: 151-165; E: 166-185; F: 186 and over (cars registered before 23 March 2006); G: 226 and over (cars registered before 23 March 2006). That same year the government further reduced the VED for the lowest emission cars to zero. In addition, it increased VED for the most polluting cars (graduated VED band G) to GBP 300 from 2007 and to GBP 400 from 2008. VED for band B cars was reduced to GBP 35 per year, while increasing by GBP 5 for all other bands from C to F in 2008. The government also issued new motorcycle VED rates and reformed the company car tax and fuel scale charges for fuel provided for private use. Additionally, a new system of lorry VED came into effect from 1 December 2001. This system was designed to reduce the total burden that lorry VED imposes on the haulage industry, while at the same time improving the environmental signals that haulers face by encouraging the use of lorries that cause less road damage and pollution. Additionally, heavy goods vehicles fitted with certain emission reduction technologies, e.g. particulate traps, or converted to natural gas, have for some time benefited from lower VED rates under the Reduced Pollution Certificate scheme. In 2006, the government developed proposals for lorry road user charging. Announced in 2008, a major overhaul of the VED system took effect in 2009, with the seven bands being expanded to 13 (see separate entry).

This record is superseded by:Vehicle Excise Duty (VED): fuel type and CO2 emission vehicle bands

date effective: 2001 (updated 2002, 2006, 2008)

Last modified: Mon, 30 Oct 2017 12:23:22 CET