Government weighs up one-off environmental tax to replace VED

The UK government is considering a proposal to replace vehicle excise duty (VED) with a new one-off environmental tax on brand new models designed to impact benefit-in-kind (BIK) calculations. Centre Forum, a leading independent think tank, has proposed the upfront environmental charge for new cars in a bid to simultaneously boost the Treasury and the wider environment. Tax revenues from the existing VED system are expected to fall significantly in the coming years and the new system, one that fleets and their company car drivers are no strangers to, would make greener motoring cheaper. Centre Forum has recommended the government consider a CO2 'pivot point' equal to the average emissions of the best-performing 1% of cars the previous year, measured by sales. The first registration fee would apply to vehicles only above this pivot point level, at a rate per gram calibrated to ensure that the yield from the one-off charge remained constant over time. Cars below this pivot point would subsequently receive a subsidy, at the same rate per gram. The report's author, Tim Leunig, proposes the threshold above which the charge will be payable will fall over time, creating a "ratchet effect whereby the cost of 'doing nothing' increases over time". John Lewis, chief executive of the British Vehicle Rental and Leasing Association, is in favour of scrapping VED, but would also like to see fuel duty removed too, in favour of national road pricing. He said: "We need a Government brave enough to get on with it. The current VED system is already too complicated and this purchase tax would be just as complex, not to mention expensive for fleets. "And if you get rid of VED in favour of a one-off charge, what is to stop a later Government re-introducing a new additional circulation tax similar to VED further down the line?" It is hoped that a new one-off upfront charge would increase the resale values of used cars including remarketed fleet vehicles as subsequent purchasers would not be required to pay VED and would be prepared to pay more for the vehicles.