Thursday, August 13, 2015

Will buying an eco-vehicle pay off in the long run?

Is eco-friendly also budget friendly, both now and in the future? Read more of this guest post to find out.

 While switching to an eco-friendly car will cut the cost of your motoring for the next few years, in the longer term it might be wise to expect an increase in tax costs.

A report by the Society of Motor Manufacturers and Traders (SMMT) anticipates that the government will look to recoup the financial incentives it currently gives to motorists looking to run greener cars within the next ten years.

According to the report, 75 per cent of cars could be entirely exempt from tax within the next decade – and if the current, emissions-based tax banding stays in place, that could mean a shortfall for the government of £1.3billion.

And with the boom in eco-cars only picking up momentum, it’s highly likely the government will look to claw back some of that cash by reconfiguring its road tax system so that only the greenest cars remain tax-free. Currently big-selling models including the Ford Fiesta and Ford Focus found at dealers such as Jennings all have versions that emit less than 100g/km of CO2 – the magic number that makes a car exempt from road tax.

The SMMT report points out that nearly seven in ten cars were exempt from road tax – or Vehicle Excise Duty (VED), to give it its proper title – and that if current purchase trends continue, that figure will rise to three quarters of new car owners escaping paying tax.

“The positive consequence of manufacturers supplying and consumers choosing ever-lower carbon-emitting vehicles is less supportive of revenue-raising and this is set to become more acute,” the SMMT report states.

“Unless regulators choose to alter the regime in the near future, government revenues from VED will decline to unsustainable levels. Around two-thirds of new vehicles registered are not liable for VED, and this proportion is set to rise.

“These increasingly efficient cars not only place pressure on the revenue raised from the first-year VED rates. Over time this shift has had an impact on the total VED take as older, more-polluting cars are replaced.”

So in short, going green is set to get more costly. If the government decides to keep the existing road tax set-up, it may look to raise money by hiking up the cost of other road policies. The London Congestion Charge, Ultra Low Emissions Zone charges and company car taxes could all come under the spotlight, the report says.

Meanwhile, less economic vehicles such as petrol-fuelled cars could become more expensive to run. “Our modelling forecasts suggest that extending the tax base to include all cars with CO2 emissions of 50g/km or above would more than maintain the current tax base in 2025,” the report points out. Any car that emits more than that, including many of today’s tax-exempt vehicles, would fall under a steeper tax bracket.

It seems what’s good for the planet is harmful for the treasury’s coffers, as the report signs off: “Unless regulators choose to alter the regime in the near future, government revenues from VED will decline to unsustainable levels.”

For a breakdown of how much greener motoring could cost you in the coming years, check out this Green Flag blog post.

See my disclaimer.

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