Budget 2023: Car tax increases revealed
Wed, 15 Mar 2023
- 5p cut in fuel duty to remain
- No changes to tax system
- Car tax to rise with inflation
- Extra £200m for road repairs
What does the 2023 Budget mean for motorists? In Jeremy Hunt's first Budget as Chancellor there were updates to car tax and fuel duty. We outline how it will affect you.
Fuel Duty
The Chancellor announced that the 5p per litre temporary cut in fuel duty announced in March 2022 will remain for a further 12 months and the long-standing rate of duty of 52.95p per litre will remain frozen - good news for owners of petrol, diesel and hybrid cars.
Jeremy Hunt said that this measure would save the average driver £100 over the next 12 months and an average saving of £200 since the temporary freeze was introduced this time last year.
The RAC has, as you'd expect, welcomed the decision and says the cut has given drivers some much-needed relief in what has been the 'most torrid year ever at the pumps'.
"Given the importance of driving for consumers and businesses, duty should be kept low to help fight inflation," said RAC head of roads policy Nicholas Lyes.
Meanwhile, the AA says it is pleased the Chancellor has frozen fuel duty.
"Not only will this save drivers heavy duty pain at the pump, but it will help keep the price of goods and services down as they are mainly transported by road," said AA head of roads policy Jack Cousens.
Car Tax
The 2023 Budget contained no specific changes to car tax rates, but a previously-announced increase in line with the Retail Price Index comes into effect, which means that road tax rates will increase for almost everyone from April 1st 2023.
>> See the new 2023 car tax rates
The standard rate for 12 months tax is now £180 (up from £165) while for alternative fuel cars it has risen to £170 (from £155). This applies to cars registered from April 1st 2017.
First year tax rates have also changed. For cars registered from April 1st 2017, the rate remains the same for cars in Band A and Band B. That means zero VED for zero-emission vehicles and £10 a year for Band B, with emissions of 1-50g/km.
Band C cars (51-75g/km) face an increase of £5 a year to £30, while Band D cars (76-90g/km) face a £10 increase to £130 a year.
Band E cars, with emissions of 91-100g/km, where the lowest-emitting petrol and diesel cars sit, face a £15 increase to £165 a year, with Band F cars (111-130g/km) getting a £20 annual increase to £210 a year.
Band G cars (131-150g/km) increase by £45 to £255 a year, while Band H cars (151-170g/km) go up by a sizeable £60, to £645 a year.
Band J cars (171-190g/km) go from £945 to £1040 a year, an increase of £85, while Band K cars (191-225g/km) go from £1420 to £1565 a year, up by £145.
Band L cars (226-255g/km) face an increase of £205 to £2,220 a year, while the highest-emitting cars in Band M over 255g/km go from £2365 to £2605, up by £240 a year.
The so-called ‘showroom tax’, levied on cars costing over £40,000 when new for years two through to six after registration, also goes up to £390 from £355.
Cars registered after March 1st 2001 and before April 1st 2017 also face increases, but by smaller amounts.
Band A and Band B vehicles remain the same, while the annual increase is £5 for Band C vehicles up to £65 for the highest-emitting vehicles in Band M.
For older cars registered before March 1st 2001, the 1549cc and below rate increases by £20 to £200 a year, while the higher rate goes from £295 to £325 a year, an increase of £30.
From 2025, electric vehicles will no longer be exempt from car tax. The change applies to electric cars, vans and motorcycles and will "ensure that all road users begin to pay a fair tax contribution as the take up of electric vehicles continues to accelerate", the Government said.
Currently, electric cars are exempt from both the annual £165 standard rate VED and the £335 premium supplement (also known as the 'expensive car supplement') for new cars with a list price of £40,000 or more.
Under the new rules new zero emission cars registered on or after 1 April 2025 will be liable to pay the lowest first year rate of VED (which applies to vehicles with CO2 emissions of 1g/km to 50g/km) currently £10 a year.
From the second year of registration onwards, they will move to the standard £165 rate.
The Government also intends to tax older electric vehicles, with those first registered between 1 April 2017 and 31 March 2025 set to pay the standard rate.
The Expensive Car Supplement exemption for electric vehicles is due to end in 2025. New zero emission cars registered on or after 1 April 2025 will therefore be liable for the expensive car supplement.
Other changes from April 2025, will see VED Band A scrapped for cars registered between 2001 and 2017. Instead they will all move to Band B.
This means that cars that currently qualify for zero road tax through VED Band A will pay £20 a year from 2025. This applies to popular models such as the Ford Fiesta, Volkswagen Golf and Nissan Qashqai, which emit less than 100g/km and currently have zero road tax.
Many of these small, more efficient petrol and diesel cars will be driven by essential workers and families already hit by the extraordinary rise in the cost of living.
Roads
The Chancellor announced increased funding for local councils to tackle the problem of potholes, an issue which has caused problems for all road users for many years.
An additional £200m will be made available from next year, further to the current £500m allocated at present.
Reacting to the news, RAC head of roads policy Nicholas Lyes said that while welcome, another £200m is unlikely to make a big difference to the overall quality of our dilapidated local roads.
"We need to significantly increase funding for local road maintenance and improvement so councils can resurface roads properly rather than patching them up and hoping for the best. Last year the Government spent £1.125bn on local roads in England which is in stark contrast to the £7bn that went into major roads from car tax, despite local roads covering so many more miles," he added.
How can I check the price of road tax on a used car?
Are electric cars liable for the £40,000 premium road tax rate?
