Changes to VED system

New car tax bands change climate of ‘green’ car-buying incentives for the worse

New car tax bands change climate of ‘green’ car-buying incentives for the worse

New car tax bands change climate of ‘green’ car-buying incentives for the worse

Almost three out of every five AA members (59%)* say there will be little or no incentive to buy low CO2 emissions cars following changes to the Vehicle Excise Duty (VED) bands, which come into force in April 2017. There are currently 445 low-emissions car models paying £0 in tax band A. This would plummet to 13, that have zero emissions**.

These drivers fear that, even if they decide to buy a Band A or zero-emissions car which will be exempt from car tax in April 2017, there will be so few of them around that they may just as well buy a gas guzzler and take a hit from the £140-a-year standard car tax rate. 

2017 changes

Currently there are 13 CO2-based VED bands, from A(£0) to M (£505). But, from April 2017, there will only be two: zero (£0) for cars that emit no CO2 and ‘standard’ (£140) for everything else. New cars will initially pay VED at a banded rate but will revert to the two-tier system after the first year. Usually, the first-year’s tax is bundled into the ‘on-the-road’ price offered by the car dealer.

However, cars costing over £40,000 will pay an additional £310 supplement for five years.

Cars registered before April 2017 will continue to pay under the current scheme.

Whilst our members realised that the system needed to be reformed they think the proposed system will not encourage the take up of lower emission vehicles

Edmund King, AA president

Works well

Edmund King, AA president, said: “The current graduated VED system works well and encourages drivers to opt for more fuel-efficient vehicles. Whilst our members realised that the system needed to be reformed they think the proposed system will not encourage the take up of lower emission vehicles.

“In the new VED system, only pure electric or hydrogen fuel cell cars will qualify for the lowest band. We believe the current system could have been reviewed to give more incentives for those that opt for lower emission vehicles.

“The Government impact assessment predicts a surge of band A, B, C sales prior to start date.  After which two identical cars in driveways next to each other would have VED at £0 p.a. or £140 p.a.” 

Changes in average CO2 emissions

The current VED structure based on CO2 bands was introduced in 2001 when average UK new car emissions were 178 gCO2/km.

The Band A threshold of 100g CO2/km or below, in which cars pay no VED, was introduced in 2003 when average new car emissions were 173 gCO2/km.

Since then, to meet EU emissions targets, average new car emissions have fallen to 125g CO2/km.

This means that an increasingly large number of ordinary cars now fall into the zero- or lower-rated VED bands, which is why the Government changed the system.

From April 2017 (after the first year’s tax, which is scaled on CO2 bands) these vehicles will be charged the standard rate – unless they cost more than £40,000, in which case they will pay a surcharge of £310 for the first five years on top of the £140 standard annual VED.


(31 July 2015)

* AA Populus survey of 29,267 AA members, 21-28 July 2015.

** There are 445 car models currently in tax band A (£0). But there are currently only 13 car models that are pure electric (zero CO2). There are a further 62 cars in band A which are hybrids (electric/petrol, electric/diesel).