Green budget hits motorists

Motorists were the biggest losers in the 2008 budget as Alistair Darling unveiled a £735 million tax hike on large family cars, 4x4s and other gas guzzlers.

The Chancellor announced a new showroom tax of up to £950 a year for cars emitting high levels of carbon dioxide which will be introduced in 2010.

Although he postponed the 2p rise in fuel duty until the autumn, Darling signalled inflation-busting petrol tax increases in future. The Chancellor also reignited speculation that the Government is preparing to introduce a national road-pricing scheme by announcing new pilot schemes over the next year.

The plans - which could see drivers paying up to £1 a mile to drive during the rush hour - were previously thought to have been dropped following comments from Transport Secretary Ruth Kelly last month.

Under the changes to vehicle excise duty (Ved), cars will be divided into 13 groups depending on their carbon dioxide emissions.

Annual road tax will then be charged at up to £440 for cars such as Jaguars, Range Rovers and even some people carriers, emitting more than 255 grams of carbon dioxide per kilometre.

Cars producing less than 100 grams will not pay any tax.

There are currently seven different bands with the least green vehicles paying £400 in 2008-09.

However, Darling also announced that from 2010 there will also be a higher first year rate - dubbed the showroom tax - for new cars. The tax will be levied on all cars emitting more than 130 grams of carbon dioxide and will vary between £115 to £950 for the least green vehicles.

Company car owners were not exempt from the Chancellor's war on pollution, as Darling said he also was reforming capital allowances for business cars to increase the incentive to move to lower carbon-emitting vehicles.

Defending the move, the Chancellor said: "It is right that if people choose to buy a more-polluting car that they should pay more in the first year to reflect the environmental cost.

"The changes will provide a real incentive to manufacturers and motorists."

The Treasury insisted that the move was to encourage greener behaviour and would leave most motorists no worse off.

However, the small print of the budget reveals that ministers expect to raise an extra £465m from vehicle excise duty in 2009 and £735m in 2010. The fuel duty rises will raise an extra £270m from 2010.