Drivers thinking about buying a wide variety of new cars starting in 2025 are set to be hit with a massive rise of more than £2,700 in road tax.
Whilst the Labour Budget introduced several beneficial measures to support motorists, including a freeze on fuel duty and an increased fund to support pothole repairs, Chancellor Rachel Reeves quietly increased a vital tax on new cars.
Officially called Vehicle Excise Duty (VED), new car buyers pay a rate that is based on the carbon footprint of the vehicle, before moving to a standard flat rate, which currently stands at £190 per year.
However, with electric vehicles subject to tax starting in April 2025, the government’s budget papers note that the cost of taxing petrol, diesel, and hybrid models will increase significantly.
It explained: “The Government will change the VED First Year rates for new cars registered on or after April 1 2025 to strengthen incentives to purchase zero emission and electric cars, by widening the differentials between zero emission, hybrid and internal combustion engine (ICE) cars.”
From April 1, 2025, the cheapest new vehicles to tax will be zero-emission models, including EVs and some plug-in hybrids. The first-year rate will be just £10.
However, many petrol and diesel tax bands are set to double next year, with small, clean hatchbacks that make between 76 to 90/km of CO2 subject to a £270 charge, up from £135.
Nevertheless, the drivers hit hardest by the tax increase will be buyers of new luxury and performance models that produce more than 255g/km of CO2, with the rate rising by a staggering £2,745 to £5,490 per year.
Nicholas Lyes, Head of Policy and Research at the motoring industry body and safety group IAM RoadSmart, noted that the tax increase penalises petrol and diesel models rather than incentivising cleaner EVs.
He warned: “Increasing vehicle excise duty on all but zero-emission vehicles in the first year will hit those buying new conventional vehicles in the pocket.
“A better solution to incentivise the take-up of electric vehicles would have been to cut VAT on the sale of new electric vehicles with a list price of £40,000 and under.”
