How shall the UK's 2024 budget statement affect car drivers?

Fuel duty

Many speculators thought that The Chancellor, Rachel Reeves, would remove the five-pence cut in duty on petrol and diesel, which was introduced by the previous government in 2022, as prices at the pumps rocketed. The cut was seen as temporary but it was extended until March 2025. Not only has the new Chancellor extended this cut for an additional year but she also has not reintroduced further fuel duty rises for 2025.

Some petrol retailers have been accused of passing increases to motorists and not reductions. While the government's competition watchdog cleared fuel retailers of profiteering accusations in 2022, the spotlight remained on the industry. Since then, it was found last month that supermarket profit margins on their fuel sales have doubled in the last five years, according to the Competition and Markets Authority. More about this can be found here.

To provide drivers with the best chance of obtaining the best value at the pump, the Department for Energy Security and Net Zero is looking to introduce 'Pumpwatch' by the end of next year. This will allow drivers to search for the lowest prices in their area and retailers have to report price changes within half an hour.

Is VED (car tax) rising?

While pay-per-mile charges were not mentioned, car tax (VED) uplifts were. Vehicle Excise Duty used to be straightforward. Now, it has become immensely complex and is related not just to emissions but also vehicle age and fuel type.

Should you wish to buy a new car, be wary of the increases in the first-year VED rate, or the 'showroom tax.' These uplifts are designed to stimulate demand for zero-emission and Battery Electric Vehicles. Zero emission cars (currently Battery Electric Vehicles) will be charged £10.00. Low-emission cars (i.e. Plug In Hybrids/PHEVs), which produce between zero and 50 grammes of carbon dioxide per kilometre, will pay £110.00. For tailpipe CO2 emissions between 50 and 75g/km, this rate increases to £130.00.

Cars that emit more than 76g/km will be penalised severely. Their showroom tax rates will double and will apply to all new cars, registered after 1st April 2025. The amounts are not insignificant. VED rates for the first year alone will now vary from £270.00 to an eye-watering £5,490.00.

Rates for used cars will continue to rise with inflation and the latest increases will come into effect on April 1st, 2025.

Benefit In Kind to favour BEVs

Doubling down on its intent to ban new non-electrified petrol and diesel cars, it is unsurprising that Reeves has kept the favourable Benefit In Kind rates to encourage update of new models by business fleets.

However, PHEVs, which offer low-emission transitional technology, are in the firing line. Some of them will now see up to a 13% increase in their BIK rates from 2028/29, which has proven to be a nasty shock for some businesses, which seek to purchase cars but are denied advance knowledge of the longer-term tax implications.

CO2 emissions for petrol and diesel vehicles appear to be the main measure, by which tax will be assessed for BIK, rather than the electric-only range. This means that vehicles producing between 1 and 50g/km will attract 18% BIK in the tax year 2028/29, rising by 19% in the tax year 2029/30.

A further shock affects drivers of double cab pick-ups. Those vehicles that possess a payload greater than one tonne will be treated as company cars for taxation purposes and not vans. As cars attract higher taxation levels, this will make them significantly more expensive not just from a BIK standpoint but also from National Insurance and capital allowances perspectives.

Does capital gains tax affect cars?

As most cars are depreciating assets, capital gains tax tends to be irrelevant. However, specialist cars can increase in value. Currently, these assets remain exempt from CGT, so they are unaffected by the rate rises that affect other disposals.

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