Diesel cars hit by Chancellor's Spending Review

In a surprise move, Chancellor George Osbourne has announced that the three per cent diesel supplement in company car tax will remain in place until 2021, cancelling plans to drop it next year.

The announcement was made in today's (Tuesday 25th November) government Spending Review, which also confirmed that the Office for Low Emission Vehicles (OLEV) will not see cuts to its budget which provides subsidies for electric vehicles (EVs) and charging infrastructure.

The current company car tax system sees diesel cars subject to a three per cent supplement over petrol models, and there were plans to remove this in April 2016. This would bring BIK tax levels for petrol and diesel cars, with emissions in the same tax band, to the same level.

However, potentially in response to the recent VW emissions scandal, George Osbourne has decided to scrap the cut and the three per cent supplement will remain until spring 2021 - earning the Treasury an additional £1.36 billion over the course of five years.

The emissions scandal might have had a significant role to play in the change in decision, along with the need by the Chancellor to find extra resources after expected cuts in a number of sectors were not as bad as first thought. One factor that definitely helped change Osbourne's mind though was the uncertainty as to when the new, more rigorous EU Real Driving Emissions (RDE) test comes into effect, and how strict it will be.

Osbourne said: "The development and sale of Ultra Low Emission Vehicles will continue to be supported, but in light of the slower-than-expected introduction of more rigorous EU emissions testing, we will delay the removal of the diesel supplement from company cars until 2021."

OLEV's funding has survived cuts and will continue to see investment of more than £600 million between now and 2020-21. According to the government, this is "to support uptake and manufacturing of ultra-low emission vehicles (ULEVs) in the UK, maintaining the global leadership that has seen 1 in 4 of all European electric vehicles built here and keep the UK on track for all new cars to be effectively zero emission by 2040. This investment will save 65 million tonnes of carbon and help deliver the long term answer on urban air quality."

Other Department for Transport announcements include confirming £13.4 billion worth of investment in roads over the next five years, and that a Roads Fund will be established from 2020-21 which will be paid for from revenue raised by Vehicle Excise Duty.

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Chris Lilly

Author:Chris Lilly
Date Updated:25th Nov 2015

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