The Budget - what's new for motorists?

The Budget - what's new for motorists?

The RAC has welcomed measures announced in the Budget to help motorists - while sounding some minor notes of caution.

Among the changes revealed by Chancellor George Osborne is a new road improvement fund, with car tax paying directly for repairs. Mr Osborne also stayed true to his promise to keep fuel duty frozen this year.

From 2017, the number of vehicle excise duty (VED) bands will be reduced to three - zero emission, standard and premium.

Some 95% of all cars sold in the UK will be on the standard rate of £140 a year - less than the average £166 that motorists pay today, Mr Osborne said.

In response to the plans, RAC chief engineer David Bizley says: "Today's budget announcement on vehicle excise duty marks a return to the days when road tax was collected and used to fund improvements in the road network.

"As new cars become more efficient, VED was always destined to bring in less and less money for the Treasury. For the first time, motorists will be able to see for themselves how the money they pay benefits the road network that they use - although it is a pity that we will have to wait five years for the roads fund to take effect.

"The devil, of course, will be in the detail but this new transparency has to be a good thing. Indeed, the RAC has previously called for ring-fencing of funds in this way."

The Chancellor pointed out that in the past 25 years France has built more than 2,500 miles of motorway while Britain has built just 300. His reforms are designed to improve the road infrastructure and productivity of the economy.

Mr Bizley says: "The changes to VED will guarantee a minimum level of spending on the roads and this, combined with the road investment strategy, suggests that the critical role that road transport plays both in our economy and in motorists' everyday lives has finally been given the attention it deserves.

"A big question mark remains, however, over how the new changes will affect people's inclination to buy low-carbon dioxide emitting, fuel efficient vehicles. For the first year of ownership of a new vehicle, incentives will still exist to select low emitting vehicles but thereafter a flat rate will apply to most vehicles. We hope the new regime doesn't undermine the major progress that we are making in reducing carbon dioxide emissions."

Mr Osborne also announced that fuel duty will remain frozen this year, which was greeted with cheers from MPs.

"By freezing fuel duty for the rest of the year the Chancellor has continued his good record of helping to ease the travel and transport costs of individual motorists and businesses alike," Mr Bizley says while adding a note of caution.

"But this sounds alarm bells for next year as by not extending the freeze further it potentially signals the country's first increase in duty since 2011.

"While oil prices are expected to stay low, the oil market is notoriously hard to predict so there is always the chance that fuel prices will be considerably higher by the time of the Budget in March 2016 and any increase in duty would therefore have a negative effect on the economy.

"The Treasury's own evidence shows that there is a compelling economic case for retaining a freeze on fuel duty because it is a hugely inefficient way of raising additional revenues for the Treasury.

"The report from April 2014, ' Analysis of the dynamic effects of fuel duty ', indicates that the loss of additional taxation revenues resulting from the freeze is offset to a significant extent by the positive impact that lower fuel prices have on GDP.

"Equally, if fuel duty is increased the benefit is offset to a significant extent by the negative impact that higher fuel prices has on GDP. Separate independent studies also highlight the clear link that exists between the cost of fuel and economic growth."

Copyright Press Association 2015

https://www.gov.uk/government/publications/analysis-of-the-dynamic-effects-of-fuel-duty-reductions (Analysis of the dynamic effects of fuel duty)