New VED rate increase in 2017

Posted: Mar 18, 2016

This will affect purchasers of cars first registered from 1 April 2017 onwards.

General description of the measure

This measure reforms Vehicle Excise Duty (VED) for cars first registered from 1 April 2017 onwards. First Year Rates (FYRs) of VED will vary according to the carbon dioxide (CO2) emissions of the vehicle. A flat Standard Rate (SR) of 140 will apply in all subsequent years, except for zero-emission cars for which the SR will be 0. Cars with a list price above 40,000 will attract a supplement of 310 on their SR for the first 5 years in which a SR is paid. All cars first registered before 1 April 2017 will remain in the current VED system, which will not change. The new rates and bands for the post-2017 VED system are set out in the table below:

New VED system - for cars registered from 2017
Emissions (g/CO2/km)	First year rate	Standard rate*

0	0	0
1-50	10	140
51-75	25	140
76-90	100	140
91-100	120	140
101-110	140	140
111-130	160	140
131-150	200	140
151-170	500	140
171-190	800	140
191-225	1200	140
226-255	1700	140
over 255	2000	140
*cars over 40,000 pay 310 supplement for 5 years

Policy objective

The current VED structure based on CO2 bands was introduced in 2001 when average UK new car emissions were 178 gCO2/km. The Band A threshold of 100 gCO2/km below which cars pay no VED was introduced in 2003 when average new car emissions were 173 gCO2/km. Since then, to meet EU emissions targets average new car emissions have fallen to 125 gCO2/km. This means that an increasingly large number of ordinary cars now fall into the zero- or lower-rated VED bands, creating a sustainability challenge and weakening the environmental signal in VED. This is set to continue as manufacturers meet further EU targets of 95 gCO2/km set for 2020. Additionally, the system results in significant unfairness as owners of newer cars pay little or no VED while owners of older cars generally pay higher rates.

The reformed VED system retains and strengthens the CO2-based FYRs to incentivise uptake of the very cleanest cars whilst moving to a flat SR in order to make the tax fairer, simpler and sustainable. To ensure those who can afford the most expensive cars make a fair contribution, a supplement of 310 will be applied to the SR of cars with a list price (not including VED) over 40,000, for the first 5 years in which a SR is paid.