(Wed 12 Mar 08)

Chancellor Alistair Darling has delayed a rise in fuel duty for six months and devised a new system of Vehicle Excise Duty rates which will come into force next year.

It had been widely assumed that fuel duty would rise by 2p per litre from the beginning of April this year, but Darling - "because I want to support the economy now and help business and families" - has deferred this until October. Depending on what happens with crude oil prices in the meantime, it's conceivable that petrol and diesel could cost less at the pumps post-October than it does now, though to say the least there's no guarantee of that.

Another increase in fuel duty - 0.5% in real terms (or "above indexation" as it's called) at the beginning of April 2010.

The VED situation is more complex, and reflects the general trend towards trying to reduce the effects of climate change by a system of taxing cars which emit high levels of CO2 on the EU combined fuel economy cycle. The situation as from April 1 this year, which is very similar to the one which applies now, is shown in the following table:

From next year, things will be quite different. The number of VED bands will increase from seven to thirteen, thanks almost entirely to a much finer division of cars emitting between 101g/km and 225g/km. There is also a new top-end division between cars emitting between 226g/km and 255g/km and those emitting 256g/km or more.

It will remain the case that cars with emissions of 100g/km or lower will constitute Band A and will not be charged VED. From there to 150g/km, VED will remain the same in 2009-2010 as it is now, or in many cases fall slightly. The more serious increases start at 170g/km, culminating in a £40 VED rise among the over 255g/km brigade. For cars running on alternative fuels there will be a £20 discount in Bands B-I and a £15 discount in Bands J-M.

The situation will become more intricate still in 2010, when the standard rate of VED will go up slightly and a new first-year rate will be introduced. By this system, cars emitting less than 130g/km will not be subject to any VED at all for a year, while those in the 131-160g/km range will be subject to the standard rate. From 161g/km onwards the first-year rate becomes higher than the standard rate, rising to a 100% increase for over-255g/km cars. The alternative-fuel discount will fall to £10 in all bands.

All this applies to cars registered after 1 March 2001. Older vehicles will have their VED frozen at £120 if their engines are under 1549cc, while for those with larger engines the rate will be £185 in 2008-09 and £200 in 2009-2010.

Other motoring-related Budget news includes the announcement that the lower threshold for the 15% Company Car Tax band will be reduced from 135g/km to 130g/km of CO2 emissions as from 5 April 2010. In a reform of the tax on capital allowance of business cars, those with CO2 emissions above 160g/km will attract a 10% writing-down allowance, while for cars emitting 160g/km or less the allowance will be 20%.

The 100% first-year allowance for qualifying expenditure on cars with very low CO2 emissions will be extended until 31 March 2013, though the definition of "very low" has been altered to 110g/km. There has been a similar extension to the 100% first-year allowance for infrastructure expenditure on refuelling equipment for vehicles fuelled by natural gas or hydrogen, and the scope is also being extended to include cars running on biogas.

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