autumn budget 2017 AA submission

Autumn Budget 2017

The Chancellor should not use his next Budget to punish diesel drivers

15 November 2017

British drivers are at a crossroads, forced to choose between familiar petrol and diesel cars, new sales of which are set to be banned from 2040, and cleaner alternatives about which there are still concerns over reliability and charging infrastructure. 

But the position we now find ourselves in is one of government’s rather than drivers’ making.

  • In the early 2000’s, the then Labour Government encouraged drivers to purchase diesel cars to reduce CO2, and
  • Successive governments have continued to push the climate-change benefits of diesel.

The Spring Budget 2017 book said that policies to improve air quality will be paid for by tax changes to diesel cars. But there has been no consultation on possible policy measures and diesel car owners are rightly concerned. 

Busy city centre dual carriageway junction

  • Three quarters of motorists say that improving air quality is important to them, but
  • Eight out of 10 drivers also say that more incentives are needed to help people buy cleaner vehicles.

Herein lies the problem – how does the Government enforce the banned sale of new petrol and diesel cars by 2040 while car owners remain sceptical of the reliability and infrastructure of the alternatives?

The Automated and Electric Vehicles Bill is a good starting point, but changing drivers’ car buying behaviour on a large scale will require a large scale package of public investment.

In our official submission to the Chancellor, we have called on the Government to:

No new or retrospective taxes on private diesel cars

After years of encouraging drivers to purchase diesel cars it would be unfair to penalise drivers who bought those cars in good faith.

Drivers contribute £44.77 billion to national and local governments in respect of Vehicle Excise Duty (VED), fuel duty, VAT on fuel duty, Insurance Premium Tax, parking fees and fines. This is equivalent to £1,183 per driver each year.

For many years, government has used tax benefits to encourage drivers to purchase diesel cars.

But for a number of reasons diesels have turned out not to be as clean as we were all lead to believe and this, combined with the resulting concerns regarding urban air quality have led to what the media has described as the ‘demonisation’ of diesel. Extra parking charges in some areas are already hitting those drivers who bought diesels in good faith.

The Spring Budget 2017 said that steps to tackle air quality would be paid for with tax changes to diesel vehicles but there has been no consultation on what this might mean in practice.

It would certainly be counter-intuitive to penalise drivers for choosing the latest Euro 6 diesels, and measures which did so could be counter-productive by encouraging drivers to hold on to older, more polluting vehicles for longer.

No government has introduced a retrospective tax hike on drivers who own older, more polluting vehicles and such a move would only penalise those who have already followed government advice to buy diesel.

  • In 2014, three out of 10 drivers said that their next car purchase would be a diesel powered vehicle. That has reduced by half, with only 16% of drivers in 2017 indicating that their next vehicle purchase would be diesel.

This shows that the habits of consumers are already changing and that new or additional tax penalties are unnecessary if the objective is to reduce demand for new diesel cars.

  • More than half of drivers (53%) say that they oppose more tax being imposed on diesel cars, irrespective of their age (AA-Populus Driver Poll of 18,633 AA members), and
  • Two fifths (43%) of drivers say that taxation for both petrol and diesel should remain unchanged (AA-Populus Driver poll of 19,308 AA members).

We call on the Chancellor to confirm that no new or retrospective taxes will be imposed on private diesel cars.

  • These drivers bought their family vehicles with best intentions and increased taxation should be seen as a last resort to encourage cleaner, greener driving.
  • A scrappage or retrofit programme will help replace or upgrade older, more polluting diesels, but adding to the tax burden for diesel cars already on the road will change nothing.
  • Taxing new diesels could be counter-productive and is counter-intuitive. Drivers don’t need tax increases to persuade them away from diesel.
Cut Insurance Premium Tax (IPT)

In less than two years the rate of Insurance Premium Tax (IPT) doubled from 6% to 12%. Responsible driving should not be taxed in this manner.

IPT on car insurance, is a tax on a compulsory purchase. For households which are just about managing, increases in IPT have added to the strain on family finances. IPT not only affects car insurance premiums, but the cost of home insurance and vehicle breakdown services too.

Due to a lack of experience and no-claim bonus, young drivers pay the highest premiums. As a result, they have felt the brunt of IPT increases.

Since the rises of IPT, the number of uninsured drivers has risen above one million. Many are believed to be young drivers who are finding the cost of insurance to be beyond their reach.

With the rate of IPT now at 12%, law abiding drivers will have seen an increase of £60 added to the average quoted premium for a comprehensive car insurance policy when compared to a year ago (AA BIPI Report – Quarter 3, 2017). 

While car insurance policies have started to reduce slightly, by £35 over the past few month, this should not be an excuse for the Chancellor to see this as an opportunity to raid the wallets of law abiding drivers once again.

Should the Chancellor be tempted to increase IPT further, more drivers could be dissuaded from insuring their vehicle. The AA believes that such a measure could also encourage some people to take extreme and illegal action to mitigate insurance costs, such as fronting or driving uninsured. These actions are prevalent for new drivers.

The AA is urging the Government to cut IPT for all drivers and to set a 0% IPT rate for users of telematics or ‘black box’ insurance.

  • Telematics – which monitors driver behaviour and rewards responsible driving – reduces the risk of collisions by up to a third, compared with conventional cover.  
  • Cutting IPT would help reduce the likelihood of some attempting to drive without cover as well as underlining the government’s commitment towards helping young people drive safely and responsibly.
Continue the fuel duty freeze

Family spending on petrol has increased £5.80 a month over the last year. For diesel it has increased £6.80 a month. Drivers should have their wallets protected at the pump.

The Spring Budget confirmed that fuel duty should be frozen until 2018/19, but drivers will be keen to hear that the Chancellor confirm that the freeze will be extended into the next financial year. 

Since 2011 the Government has consistently shielded UK drivers from duty rises because fuel price volatility creates significant uncertainty for business and family budgets. 

Since October 2016, the price of petrol has gone up by more than 2.9 pence per litre. For diesel it has increased by 3.4 pence per litre (AA Fuel Price Report). Household spend on motor fuel remains a significant part of their weekly spend. 

A year ago, a family with two petrol cars refueling twice a month, was spending £230.20 a month, now it is £236.00 a month. For a family with two diesel cars refueling twice a month, it has increased 2.82% to £240.60 a month.

As the price of fuel has risen, the Government has received an additional £180 million against forecasts as a result of the higher level of taxation through VAT on fuel between 2015-16 and 2016-17 (Office of Budget Responsibility). Should fuel duty be increased, even if it were only to be applied to one fuel type, it would create a significant VAT windfall for the Treasury. 

Because of the rising prices of crude oil, uncertainty regarding the supply of oil and the weakness of the pound against the dollar, the AA does not believe fuel prices will significantly reduce in the short-term. These issues are likely to continue applying pressure on the pump price of fuel, the latter is particularly dependent to negotiations to leave the EU.

The Government should continue to freeze fuel duty because of the sustained fluctuations of fuel prices.

Electric vehicles and supporting infrastructure

The proposed ban on the sale of new petrol and diesel cars in 2040 is a line in the sand. But more must be done now to pave the road to cleaner motoring.

Three quarters of AA members say that improving air quality is important to them and the Government has set its stall out in terms of banning the sale of new petrol and diesel cars by 2040. It has also set a target of zero tailpipe emissions by 2050.

AA members say that a having a long term target is a good goal, but more needs to be done now in order to improve air quality. Accelerating the level of investment in cleaner motoring would show that the government is keen to be a world leader in resolving this issue.

While the Automated and Electric Vehicle Bill looks at installing charging points at motorway service stations and large petrol stations, more must be done to install destination and on-street charging points. More than eight out of 10 drivers say they are put off the purchase of electric vehicles because of the lack of charging points.

The Chancellor could use the Budget as an opportunity to make the UK a leader in low-emission driving and commit to a high level investment for the installation of charging points.

  • Though total electric vehicle registrations passed 100,000 in March 2017, this is still a drop in the ocean compared with registrations of petrol and diesel vehicles.
  • For eight out of 10 drivers, the relatively high purchase price of electric vehicles is a significant barrier to purchase, even taking into consideration the grants currently available.
  • While the cost of electric vehicles may eventually come much closer to that of equivalent conventional combustion engines, the Government could take further steps now to encourage more drivers to switch to electric vehicles.

Current grants are only doing so much to entice drivers to swap their vehicles. Three quarters of drivers say that a diesel scrappage scheme should be introduced alongside the grants to help car owners purchase cleaner vehicles.

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