Members of the Transport Select Committee say VW’s decision to compensate US owners but not those in the UK is “deeply unfair”.
And they say the Department for Transport (DfT) has been much too slow to investigate whether the manufacturer should be prosecuted in the UK.
Last September VW admitted that over 480,000 of its diesel vehicles in the US had been fitted with software that switched their engines to a cleaner mode when emissions were being tested.
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The German manufacturer said nearly 1.2 million vehicles in Britain were affected.
But it is disputing whether the software constitutes a defeat device in the European Union.
The select committee’s report says the DfT has been “far too slow to assess the applicability of its powers to prosecute VW”.
And it says without proper sanctions there will be little to stop a similar scandal occurring in the future.
Louise Ellman, chairwoman of the select committee, said while VW had “acted cynically” to cheat environmental tests, the government had “lacked the will” to hold it accountable.
A “great deal of uncertainty”, she said, had been inflicted on motorists, along with the inconvenience of having to get their vehicles repaired and the prospect of residual values falling.
Despite that, she said, vehicle owners have been refused goodwill payments.
Ms Ellman said members of the committee are concerned that VW’s fix has been developed “at the lowest possible cost”.
They are worried, she adds, this could result in motorists incurring increased costs “down the line”.
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A spokeswoman for the DfT said VW’s “unacceptable actions” are being taken “extremely seriously”. The department, she adds, continues to “push VW” to make sure it takes action.
The spokeswoman said the department is spearheading a push for emissions tests that reflect real-world performance to be introduced.
The Real Driving Emissions tests will start next year, she said, helping to restore consumer confidence and improve air quality.
Volkswagen has announced plans to develop a number of new electric vehicles that could hit the road by 2025 an announcement that was made in the wake of an internal inquiry following the emissions scandal uncovered last year.