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May 19, 2015

UK CO2 emissions fall for 17th consecutive year

The Society of Motor Manufacturers and Traders (SMMT) commissioned Cebr to consider the future of motoring taxation and the role of vehicle excise duty regimes. Our report examines the impact of potential reforms to motoring taxation on the automotive industry as well as wider economic implications. It explores issues surrounding the balance between fiscal sustainability, tax revenues, industrial interests, environmental objectives, equality/fairness and competitiveness.

 

In 2013/14, of the total tax take of around £33 billion, VED from all vehicles contributed almost £6 billion of revenue, equivalent to 1.2% of all tax receipts. VED has been a highly effective and successful policy tool both in raising revenues for the government to part-fund transport expenditure, but also in incentivising the uptake of greener, more efficient vehicles across the entire motorparc. A variety of government policies and grant schemes have signalled and incentivised consumers to buy increasingly efficient vehicles, encouraging an uptake of alternatively fuelled vehicles. At present, around two-thirds of new vehicles registered are not liable for VED in the first year.

 

Fortunately, being a key trading partner with Europe, the UK benefits from a rapidly growing export market for newer efficient models in addition to a robust domestic market. As the motorparc continues to expand and the tax base from used and new cars increases, VED revenues will be supported in the short term.

 

Despite relatively stable VED receipts, medium-term forecasts suggest that VED receipts from cars will begin to fall in both nominal terms and as a percentage of GDP from 2015/16 onwards. Our central forecast, which is based on recent rates of reduction in average CO2 emissions and the UK marginally meeting the 2020 EU target of 95 g/km, would see revenue fall from over £5.7 billion in 2013 to around £4.4 billion in 2025, even with VED rates revalorised by RPI inflation each year. Receipts would therefore fall from their 2013 level of 0.33% of GDP to just 0.16% of GDP in 2025.

 

Based on the current system, our central forecasts suggest that by 2025, nearly three quarters of all new cars would be exempt from VED payments altogether, placing continued pressure on VED revenues in coming years. In summary, while VED remains an effective tool, continual assessment of the VED regime and modest evolutionary adaptation will be necessary in supporting the UK motoring taxation base in future.

 

For a copy of our Cebr report and more information on the SMMT New Car Co2 Report 2015, visit

http://www.smmt.co.uk/2015/04/uk-co2-emissions-fall-for-17th-consecutive-year-as-record-two-thirds-of-new-car-buyers-enjoy-0-first-year-tax/

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