Vehicle Excise Duty: introduction of the diesel supplement
Published 22 November 2017
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Who is likely to be affected
Purchasers of diesel cars registered after 1 April 2018 that do not meet the real driving emissions standard.
General description of the measure
This measure will apply a supplement to new diesel vehicles from 1 April 2018 to the effect that these cars will go up by one Vehicle Excise Duty (VED) band in their First-Year Rate. This will apply to any diesel car that is not certified to the Real Driving Emissions 2 (RDE2) standard.
Policy objective
The ‘UK plan for tackling roadside nitrogen dioxide concentrations’, published in July, set out that measures to improve air quality will be funded through changes to the tax treatment for new diesel vehicles. The revenue raised from this measure will fund the implementation of local plans to improve air quality in areas with high levels of air quality pollutants and also to facilitate a Clean Air Fund. This measure also supports the UK’s transition to less polluting zero and ultra-low emission cars.
Background to the measure
This measure was announced at Autumn Budget 2017. The revenue raised will fund the measures set out in the ‘UK plan for tackling roadside nitrogen dioxide concentrations’ and facilitate a Clean Air Fund.
Detailed proposal
Operative date
The measure will have effect on and after 1 April 2018.
Current law
Section 1 of the Vehicle and Registration Act (VERA) 1994 provides for the charging of VED. Section 2 of VERA provides that VED in respect of a vehicle of any description is chargeable by reference to the applicable rate specified in schedule 1 of VERA.
Proposed revisions
Legislation will be introduced in Finance Bill 2017-18 to amend Schedule 1 of VERA, applying a supplement to new diesel cars registered after 1 April 2018. This will apply to new diesel cars which do not meet the standard set out under Annex IIA of Commission Regulation (EU) 2017/1151 for the second stage of Real Driving Emissions.
Cars which are certified as meeting the Real Driving Emissions 2 (RDE2) standard under Annex IIIA of Commission Regulation (EU) 2017/1151 will be exempt from the diesel supplement. This will be set in legislation at a value of nitrogen oxides (NOx) no greater than 80mg/km.
The RDE2 standard sets a maximum permitted level of car NOx emissions in real world driving situations, and it is measured through portable emissions-measuring equipment in a variety of real driving trips. Cars must pass the certified level of NOx emissions irrespective of the driving behaviour during the test - for example, the level of emissions produced when an engine is under stress, say, by driving uphill.
Manufacturers will certify NOx emissions. The certificate of conformity manufacturers produce will record which Euro-standard the vehicle is certified to. Diesel cars registered after 1 April 2018 and certified with a real-world NOx emissions figure greater than the RDE2 standard or without a certified NOx emissions figure will be subject to a supplement to the effect that these cars will go up by one VED band in their First-Year Rate.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 |
|---|---|---|---|---|---|
| nil | +125 | +50 | +10 | negligible | negligible |
These figures are set out in Table 2.1 of Autumn Budget 2017 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2017.
Economic impact
This measure is expected to have a very small positive effect on inflation in 2018 to 2019, with a very small negative effect in subsequent years. It is not expected to have any significant macroeconomic impacts.
Behavioural responses to this policy change are estimated to be negligible due to the low level of the tax increase in relation to car purchase price.
Impact on individuals, households and families
This measure would impact on purchasers of new diesel cars after 1 April 2018. These individuals will pay more in First Year Rates depending on vehicle choices e.g. someone purchasing a typical Ford Focus diesel will pay an additional £20 in the First Year, a VW Golf will pay £40, a Vauxhall Mokka £300 and a Landrover Discovery £400.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure will impact those sharing protected characteristics which are representative of car buyers, and these are more likely to be male than female.
Impact on business including civil society organisations
The measure is expected to have a negligible impact on businesses and civil society organisations. One-off costs include familiarising themselves with the rate change and implementing it in their systems. No ongoing costs are expected. It is expected that the cost of some vehicle licenses will rise as a result of this measure.
Operational impact (£m) (HM Revenue and Customs or other)
There will be negligible impact on operational costs for the Driver and Vehicle Licensing Agency (DVLA) and no additional administrative costs for affected car drivers.
Monitoring and evaluation
This measure will be evaluated and monitored through the DVLA vehicle licensing data.
Further advice
If you have any questions about this change, please contact the DVLA on Telephone: 0300 790 6802 or online.