New car tax rules will give the Treasury an extra £2.4 billion a year by 2029

New VED (Vehicle Excise Duty) rates will give the Treasury an extra £2.4 billion a year by 2029, according to a new report from the Office for Budget Responsibility (OBR).

Commonly known as car tax, the economic and fiscal outlook report forecasts VED receipts will increase from £8 billion to over £10.4 billion within the next six years. The report stated that the rise in car tax revenues can be attributed to inflation and VED exemption for electric vehicles (EVs) ending in 2025.

Electric vehicle road tax will see more than one million extra drivers having to pay VED every year.

On Wednesday 22nd November, Chancellor Jeremy Hunt delivered his Autumn Statement to Parliament and according to the OBR, VED cost drivers over £7.3 billion in the last financial year.

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With electric vehicles increasing in numbers across the UK and a general election looming, the estimations could change in the years ahead.

There are already more than one million EVs in use in the UK, according to the annual Motorparc data from the Society of Motor Manufacturers and Traders (SMMT), which was published in April 2023.

With the Zero Emission Vehicle (ZEV) mandate coming into force next year, 22% of all car manufacturers sales will need to be fully electric – adding to the numbers that will be appearing on the roads. This number will increase incrementally until 2035.

The OBR document stated: “The main policy driver for EV uptake is now the Zero Emission Vehicle (ZEV) mandate which takes effect in January 2024.

“We have therefore revised our EV assumption to match the path of the mandate over the forecast horizon.

“We judge sales are unlikely to materially exceed this across the forecast horizon due to flexibilities that allow trading of allowances and borrowing against future allowances in the first three years of the mandate.”

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