Vehicle Excise Duty – Let’s call it Car Tax again and have done

What’s the difference between a tax and a duty, and does it really matter?

Interestingly - or not, depending on your point of view - duty is traditionally a levy on goods while tax is applied to individuals.  Both hurt just the same.

Vehicle Excise Duty (which is neither one nor the other really because it’s an individual’s payment relating to a good – their car – they already own) is being reformed.  It comprises something approaching forty different charging bands for everything from HGVs to Tricycles dependent on age and engine size or emission level.  Frankly it’s bonkers, and just for good measure, from April Fools’ Day (I kid you not) the government is adding another seventeen new bands for newly registered vehicles.

A bit of history would be illuminating here.  In 1888, the then Chancellor, George, 1st Viscount Goschen introduced two new vehicle duties the locomotive duty and the trade cart duty.  Twenty-one years later, David Lloyd George announced that public roads would from now on be self-financing (that went well) and hypothecated vehicle taxes for that purpose.  It never happened; Churchill, in particular, was notorious for snaffling road taxes for general spending and the pretence was finally given up in the 1950s. 

Since that time, road duties/taxes have been quite clearly no different from Income Tax or VAT in that they’re just one way in which the Treasury raises money to pay for services.  There has been a rather unconvincing show of partly linking rates to emissions but this has never worked properly.  The new system turns this show of green credentials into even greater farce, whereby a new car can be liable for almost twice the VED payable for an older one even though both are adjudged to produce identical quantities of pollution per mile.  Hybrids will pay more than before, as will many of the lower emission vehicles people have been encouraged to buy.  In short, the whole VED system will be even more arcane, confusing and unfair than ever before.

So what’s to be done?  Some have suggested scrapping VED altogether and lumping the amount charged directly onto fuel.  Because VAT is payable on the total price the percentage cost of duty at the pumps varies by the week.  In the last fifteen years or so, according to the RAC Foundation, it has been as high as 76%.  As I write this, the figure is around 66%.  Either way, such a move would unfairly penalise freight, public transport, delivery vehicles etc., as the largest consumers of fuel.  What’s more the polluter pays element would be lost as “dirty” vehicles would pay the same as clean ones. 

Various governments have suggested a “pay as you drive” scheme whereby all vehicle miles are liable.  This would leave the cleanest and dirtiest vehicles on precisely the same footing with the most voracious gas guzzler being only as liable as the leanest hybrid.  And what is clean?  It’s all very well to calculate liability on the grounds of CO2 emissions or NOX or both, but these ignore the appreciable levels of deadly materials released by tyre wear and road surface disintegration – problems directly related to vehicle weight/quality of suspension.  In other words, whatever kind of carrot is used to try to sweeten the pill for the more environmentally-minded of us, VED will still be a great big unfair stick to very many people.

Let’s face it; it’s a tax, so we should call it that.  It’s a tax which will always be one of the most unpopular because of its perceived unfairness.  It’s a tax which shouldn’t pretend to be related in any way to environmental credentials of the payee or road building by the government.  If people are to be charged it, then make it a flat rate which all can understand and which would hopefully be more efficient on the grounds that it would be so much simpler to administer.  Better than that why not scrap it altogether and spread the revenue generation requirement across other areas of general taxation, and give a break to our hard-pressed road haulage and public transport sectors, not to mention the ordinary private motorist?  

At less than 1% of the government’s overall annual tax take, isn’t it time we accepted that VED is more trouble than it’s worth.  With apologies to Lord Goschen, it’s a nineteenth century idea with no place in a twenty-first century economy.