May 5, 2008

Tens of thousands of cars will be rendered virtually worthless as a result of the decision to raise road tax on older models with higher carbon dioxide emissions by up to £245 a year.

The decision to remove the exemption from higher road-tax rates for cars that emit more than 225g of CO2 per km, and were registered between March 2001 and March 2006, has been given next to no publicity, and reflects another U-turn for the government. Ironically the decision looks to be environmentally detrimental, as it will mean perfectly good vehicles being scrapped purely owing to the cost of taxing them.
CAP, the research company that supplies the used car industry with data on residual values, said that many larger cars would be reduced to their scrap value because they would fall into one of the higher tax brackets being introduced for high-emission cars next April.

Mark Norman, CAP’s development manager, said: “When people find out that it could cost half a car’s value just to tax it each year, its value will plummet. Many of these cars, particularly saloons, will be reduced to their scrap value. The sad thing is that perfectly usable cars will be scrapped, which could perversely increase overall CO2 because of the emissions from manufacturing new cars.”

He added that the changes would be felt most by the people least able to afford it. “Poorer families who need a bigger car to transport children and luggage will find their car has lost up to £1,000 of its value. They face an impossible choice because many will struggle to pay the higher road tax but won’t be able to afford to buy a more fuel efficient car with a lower road-tax rating.”

Families will be hit with a double whammy of having to finance the purchase of a new car without being able to sell their own vehicle for anything like it’s value just a week ago.

Adrian Rushmore, managing editor of Glass’s used car guide, noted that this would increase the impact that high fuel prices were already having on residual values. “Fuel costs have increased by 25 per cent since January last year and higher road tax will help accelerate the trend towards faster depreciation for less fuel efficient models. The motor trade needs to tell people thinking of buying one of these cars that they will face a big hike in road tax from next year. That may influence their decision.”

Cars registered before March 1, 2001, will continue to be exempt from the higher road-tax rates. This will make many of these cars more valuable than newer versions of the same models. This makes little sense environmentally as they are likely to have done fewer miles and may well be more efficient. But as they are liable for double the road tax they will be rendered worthless.

The Treasury admitted yesterday that it hadn’t made the planned changes clear in the Budget. A spokeswoman said: “It’s not as clear in the Budget as it could be. It’s not explicitly spelt out.”

Justine Greening, the Conservative Treasury spokeswoman, said: “This is duplicity from the Treasury who deliberately failed to make any mention of this tax grab at the time of the Budget. Last year Gordon Brown promised not to backdate the CO2 charge on family cars to before 2006 and now he’s broken yet another promise.

If you’re looking to buy a new car you’d be best off checking which tax bracket it’s going to fall under from April, otherwise you could end up paying for a nice car that will be worthless in a years time.

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