Philip Hammond’s Autumn Budget speech had a high joke-per-minute count, but there was no hiding that this was a relatively subdued occasion. As we predicted in our preview post last week, the Chancellor didn’t have much room for the kinds of giveaways that Chancellors like to indulge in. Alongside the Budget, the Office for Budget Responsibility had significantly downgraded its economic growth forecasts for the next five years, meaning lower tax receipts for the Exchequer and making deficit reduction even more difficult.
Tax hikes for (some) diesel cars
Indeed, the main policy for fleets and motorists in Hammond's 2017 Autumn Budget was a tax hike – or, rather, a pair of tax hikes. Starting next April, new diesel cars will be pushed into higher first-year Vehicle Excise Duty (VED) bands than their petrol counterparts. So, for example, a diesel car that emits 105g/km of carbon dioxide will face Vehicle Excise Duty of £165 in its first year, compared to £145 for an equivalent petrol car.
All of the rates are shown in our table below:
Diesel supplement for Company Car Tax set to increase
Also starting next April, the diesel supplement that’s currently applied to Company Car Tax will be increased from 3 percentage points to 4 percentage points. Unlike the changes to Vehicle Excise Duty which only apply to new vehicles, the additional 1% diesel supplement will apply to all current company cars.
However, these tax hikes aren’t cause for panic. After all, the Chancellor was telling us to expect them as far back as March and are moderate compared to some of the environmental recommendations made to the Chancellor in the lead up to the Budget.
Additional clarity is now given around a number of crucial exemptions. Neither the Vehicle Excise Duty nor Company Car Tax changes will apply to vans. What’s more, diesel cars that meet the new Real Driving Emissions Step 2 (RDE2) standards will not be pushed up into the higher first-year Vehicle Excise Duty bands. They will also be free from any diesel supplement when it comes to Company Car Tax.
The change from the current vehicle testing regime (New European Driving Cycle, or NEDC) to the tighter RDE2 has had many company car drivers and their employers worried about the implications of the new, increased values on benefit-in-kind (BIK) rates. The Chancellor confirmed that until at least 2020, company car tax will be based on the current NEDC and not the new Worldwide Harmonised Light Vehicle Test Procedure (WLTP) and Real Driving Emissions (RDE) standards.
This provides the Government with 12 months’ breathing space to devise the new BIK bands for post-2020, and assurance for car drivers for at least the next three years.
A clear investment in electric motoring
Hammond was considerate elsewhere in his Budget, too. Although he didn’t have much money to play with, he did play well with what he had. Here at Hitachi Capital Vehicle Solutions, we were particularly pleased with the investments that were made in electric motoring. The chancellor also mentioned
- an extra £400 million for the nation’s charging network
- £100 million to prolong the Plug-In Car Grant until 2020
Alongside the billion-pound sums that often feature in Budget speeches, these sums might not sound like much – but it could make a real difference for people and businesses looking to go green.
Fuel Duty remains frozen
Another kindness – albeit an unsurprising one – came in the form of the Chancellor’s decision to extend the Fuel Duty freeze for another year. The rate of duty for petrol and diesel will now be kept at 57.95 pence per litre until at least April 2019, at a cost of over £800 million a year to the Exchequer.
The politics of this freeze is worth wondering about. It had been speculated that the Chancellor might cut Fuel Duty for petrol, but raise it for diesel. Is this something that he might consider in future? Or has he backed away from this idea for good, in fear of how Conservative backbenchers would react? If the latter, it’s a reminder that Hammond is constrained not just by the nation’s difficult financial situation, but also by his own party’s minority status in Parliament.