Autumn Budget 2017: diesel tax rises, freeze on fuel duty and support for autonomous and electric vehicles

Chancellor Philip Hammond presented an assured Autumn Budget, promising a Britain fit for the future as he unveiled rises in diesel taxes, an eighth successive freeze in fuel duty and support  for autonomous and electric vehicles.

The second Budget of the year, following the switch from the traditional Spring Statement to a new Autumn announcement, it was aimed at allowing Britain to ‘seize the opportunities from Brexit’ and build a prosperous and inclusive economy, said the Chancellor.

Brexit figured prominently in the speech and another £3 billion was being set aside over the next two years to ensure the country is prepared for every outcome, said the Chancellor.

For fleet operators, there were a number of new initiatives of note, including new diesel taxes, a freeze in fuel duty and investment in electric vehicles and recharging infrastructure.

New taxes for diesels

For fleet operators who run primarily diesel cars there is an additional financial burden following the extra taxation that the Chancellor announced from next April. The first affects Vehicle Excise Duty with the first year rate for all new diesel cars that do not meet emissions target going up by one tax band.

At the same time while the diesel Benefit-in-Kind surcharge of 3% is increased to 4% from April.

As a result, more than 800,000 drivers of diesel company cars including the latest Euro 6 models will pay out £70 million extra in diesel company car tax in tax year 2018-19.

The Benefit in kind (BIK) surcharge on diesel company cars – but not diesel hybrids – rises from 3% to 4% next April unless they meet the Real Driving Emissions Step 2 standard (RDE2), a new standard to which all new car models must be subjected to from September and which applies to all new registrations from September 2019.

The European Union timetable for the introduction of RDE2 means that it is almost certain that no diesel cars currently on the UK roads will be exempt from the increased charge. Indeed, the government says: “It is likely that few, if any, cars will meet RDE2 standards in 2018 to 2019.”

As a result, the government calculates that 800,000 drivers will pay more tax as a result of the supplement increase. However, the government says that 350,000 company car drivers per year replace their company cars, so within a few years, most affected drivers would have had the opportunity to choose new cars not subject to the supplement.

These two new initiatives will apply to cars only from April 1, 2018, and not to vans, lorries or heavy goods vehicles.

One of the stipulations of the current Euro 6 emissions testing regulation is that new cars must emit less than 80mg/km of toxic nitrogen oxides (NOx). But cars that pass Euro6 lab tests have been shown to emit greatly more than 80mg/km in the real world; the new test is designed to help eliminate this discrepancy to some degree.

To complicate matters further, there is some leniency built into RDE2 in that cars that conform will not be penalised if they are found to emit 1.5 times the 80mg/km outside test conditions.

In a nutshell, though, the new rule means that some diesel cars built after April 1, 2018, which must all conform to Euro6 standards, may not pass the new RDE2 test and so would be subject to the VED supplement announced at the Budget. It’s not clear at this point how many new cars this may affect.

The additional money so raised, at around £220m, will be used for a clean air fund to help local authorities meet clean air targets, said the Chancellor.

Autonomous vehicles

The Chancellor said the government was looking to have “fully driverless cars without a safety attendant in the car” on the roads in the UK by 2021.

“Today we step up our support for driverless cars; our future vehicles will be driverless but they’ll be electric first and that’s a change that needs to come as soon as possible for our planet,” Mr Hammond said.

And he said the industry would be worth £28bn to the UK economy by 2035 and support 27,000 jobs.

Public road trials of connected and autonomous vehicles have recently been announced by Jaguar Land Rover, Ford, and Tata Motors’ European Technical Centre.

Electric vehicles

The Chancellor announced that another £100m would be available in plug-in grants for electric vehicles, and that there would be a £400m investment to support the growth in electric vehicle recharging infrastructure. There would be a further £40m for charging research and development.

He also announced that, from next April, recharging plug-in EVs in the workplace would not now be seen as a Benefit-in-Kind as it had been previously.

With the aim of encouraging greener vehicles, the Chancellor said the Government would “clarify the law” to ensure those topping up at work did not face a Benefit-in-Kind charge from next year

Fuel duty frozen

The Chancellor announced that fuel duty on petrol and diesel would remain frozen, cancelling the planned rise for the eighth successive year and making the current fuel duty freeze the longest for 40 years.

Since 2010, the Chancellor said, this initiative had saved the average car driver a total of £850 while the average van driver had saved around £2,100 over the same period. The cost to the Exchequer was £46bn since 2010, the Chancellor said.

Vehicle Excise Duty

The Chancellor had already confirmed changes to the VED system in the Spring Budget, which sees an increase in line with the Retail Prices Index (RPI) for all cars, vans and motorcycles registered before April this year.

However, all cars registered after April 1, 2017 now come under the new system and, following the Budget Statement, the First Year Rate for diesel cars registered from April 1, 2018 will now go up by one tax band compared to the original scheme.

For example, a Ford Focus diesel (CO2 emissions 91-100g/km) will be subject to an additional £20 in the First Year, a Volkswagen Golf (CO2 emissions 111-130g/km) an additional £40, a Vauxhall Mokka (CO2 emissions 131-150g/km) £300 and a Land Rover Discovery (CO2 emissions 171-190g/km) £400, according to government figures.

As with BIK, the new VED rate for diesels will not apply to next-generation clean diesels – those which are certified as meeting emissions limits in real driving conditions, known as Real Driving Emissions Step 2 (RDE2) standards, under the new EU testing regime.

The government forecasts that the policy change will have little impact on driver behaviour in terms of choosing a diesel car due to the “low level of the tax increase in relation to car purchase price”.

However, the government estimates the tax rise will raise an additional £125 million in 2018/19, reducing to £50 million in 2019/20 and £10 million in 2020/21.

Public transport and other investment

The Chancellor also announced a further £500 million investment “in a range of initiatives from artificial intelligence, to 5G and full fibre broadband” and there will also be a new £1.7 billion Transforming Cities Fund to help local governments grow public transport.