Expert Commentary: Budget Car Tax and Fuel Duty

In his first ever budget speech yesterday Alistair Darling increased car tax and set the 2p rise in fuel costs to come into effect in October 2008. By and large the critics thought the increases would put a strain on consumers who are already paying for fuel at the highest ever level – and they also debated whether the tax cuts for greener cars would be enough to encourage people to change their attitudes to cleaner transport.

The good news for motorists is that the Chancellor has decided to delay the 2 pence per litre rise in fuel until October 2008, but the cost of fuel is already at an all time high with average petrol prices across the UK standing at 106.1 pence a litre and unleadedand diesel at 112.5 pence per litre.

“Today’s announcement may prove a bitter pill to swallow for Britain’s 41.7 million motorists,” said Ashton Berkhauer, insurance expert at price comparison site uSwitch.com. “Only those drivers opting for the least polluting vehicles, currently representing just 0.2% of all cars on the road will be incentivised.”

He said that although people may question the difference a few pennies will really make, the fact is that in October, consumers will see the cost of filling a standard car pushed to a wallet draining £974.71.

Steve Grainger, head of insurance.co.uk, agreed:

“For those who are already stretching to meet petrol prices, October will arrive all too quickly,” he said.

For several months there has been speculation that people buying the most polluting vehicles will be penalised and environmentally friendly drivers rewarded, so there was little surprise in the announcement of an increase in car tax for the biggest ‘gas guzzlers’. From 2010 drivers with the lowest polluting new cars will not pay any tax in their first year. In contrast to this, the most polluting vehicles can expect an increase. It is speculated that the tax on Band G vehicles will increase by 233% from £300 to £1,000 in the first year.

“Drivers of green vehicles are best off financially,” concluded Berkhauer. “Our research shows that eco-friendly car owners currently save £165.40 a year on fuel compared to those driving standard cars. The increase in October will boost this saving to almost £170 a year.”

And like many other critics, Berkhauer questioned how fair the extra charges for gas-guzzlers really were.

“The new proposal could see larger family cars, such as the Renault Espace, being subjected to the same tax as a new Lamborghini Gallardo,” he said. “An extra £1,000 may be small change to a Lamborghini buyer considering the £126,350 price tag. However, this could be a real strain on an average family’s budget.”