Budget 2008: What it means to you

High-polluting vehicles will be hit harder, but incentives for green cars will be introduced and fuel duty rises shelved, announced Chancellor Alistair Darling in his 2008 budget.

Fuel duty

Lobbying from consumer and freight organisations, as well as record increases in oil prices, have convinced Chancellor Alistair Darling to delay planned fuel duty rises by six months.

A rise of 2p per litre had been planned, but pressure from lobby groups and consumer unrest at the high cost of motoring has led to Darling shelving the plans.

But fuel duty will rise by 0.5p per litre in real terms in 2010, warned the Chancellor.

Road tax

Road tax will be regraded to encompass bands from A-M, to punish those who buy the most polluting vehicles and encourage manufacturers to drive down emissions from their cars.

On top of the highest rates will be a so-called 'showroom tax' that will mean high polluters will pay an even higher rate for the first year.

Cars emitting more than 255gkm would be subject to the highest rate - paying up to £950 in the first year.

From 2009-10 VED for all cars emitting under 150g/km of CO2 will be reduced, while the standard rate of VED on the most polluting cars will be upped to £425. From 2010-11 all cars emitting less than 130g/km of CO2 will be exempt from road tax.

Currently a Band G vehicle that emits more than 225g/km pays £300 per year, rising to £400 per year next month.

At the moment alternative-fuel cars receive a discount on VED - this will change in 2011 when all fuel types will be taxed at the same rate.

'It is right that if people choose to buy a more polluting car that they should pay more in the first year to reflect the environmental cost,' Darling said.

See below for the new rates of road tax introduced today.

Company car tax

Capital allowances for business cars will be reformed to incentivise companies to encourage their employees into lower-emission cars. The business fleet accounts for around two-thirds of total car sales.

From 5 April 2010 the lower threshold for the 15 per cent Capital Car Tax band will be lowered from 135g to 130g/km.

Leasing

From April 2009, cars with CO2 emissions over 160g/km there will be a 15% disallowance relating to finance payments. For cars emitting 160g/km or under there will be no disallowance. This replaces the current system of disallowance for cars costing more than £12,000.

Biofuels

Darling announced that money will be set aside to develop road-pricing schemes and - as expected - announced that biofuels will not be subsidised from 2010, saving the Treasury over £500m a year.

Darling has scrapped the tax break on biofuels due to environmental concerns about the sustainability of biofuel crops. Instead the government will press ahead with existing plans to require petrol and diesel to include 5 per cent biofuel by 2010.

CNG and LPG

Duty rates discounts for Compressed Natural Gas (CNG) will remain, whilst for Liquid Petroleum Gas (LPG) the discount is to be cut by 1%, both taking effect from 1st October 2008.

Other measures

• It is believed that global economic pressures have delayed plans to introduce harsher green taxes on high-polluting vehicles.

• Announcements on a showroom tax on so-called gas-guzzlers of up to £1,000 and laws that would force oil companies to develop more sustainable biofuels were not announced.

• A report published alongside the budget called for -whole-life running costs of cars to displayed on new cars and clearer environmental information on advertising provided by manufacturers to indicate the relative greenness of their cars.

New road tax rates

Annual VED rates current-2009

Annual VED Rates in 2009-10

Annual VED Rates in 2010-11

Annual VED rates for new cars bought in 2010-11, including showroom tax