LONDON: Two-thirds of new cars sold in the UK now have such low carbon emission ratings that they pay no tax for the first year, putting pressure on revenues raised by the Treasury.
UK motorists buy more plug-in cars hybrid vehicles with rechargeable batteries or fully electric models — than any other European country, though the number is a small fraction of annual sales, at almost 15,000 in 2014 against overall UK car sales of 2.5m.
But the popularity of models such as the Mitsubishi Outlander PHEV and increasingly fuel efficient petrol and diesel engines means that more than two-thirds of new cars are exempt from vehicle excise duty in the first year of ownership, according to figures released on Tuesday by the Society of Motor Manufacturers and Traders.
Meanwhile, petrol sales fell to an 25-year low in March, despite a litre of unleaded fuel being on average 18p cheaper than March 2014, according to data from HMRC.
The RAC motoring organisation said the fall to 1.3bn litres reflected the switch away from petrol to diesel — which itself tends to achieve better fuel economy — and a newer and more efficient fleet of cars in the UK, and meant fuel duty collected by the government was £172m lower than in February.
The news puts the government in a squeeze as it seeks to bring down the budget deficit while meeting ambitious environmental targets, such as halving carbon emissions from 1990 levels by the middle of the next decade.
“Striking the delicate balance between influencing buying behaviour, encouraging investment and maintaining critical tax income will be a big challenge,” said Mike Hawes, chief executive of the SMMT.
Manufacturers are also under pressure to meet strict emissions targets from Brussels that call for average emissions of 95 grammes of carbon dioxide per kilometre by 2020.
Vehicle excise duty (VED) and fuel duty, the UK’s two main motoring taxes, raised a combined £33bn in the 2013-14 tax year. The vast majority of this — about £27bn — came from fuel duty.
