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27 November 2023, 11:16

Maximizing VED Impact: Treasury Set to Gain £2.4 Billion Annually by 2029

In a significant fiscal forecast, the Office for Budget Responsibility (OBR) projects that the new Vehicle Exercise Duty (VED) rates will contribute an additional £2.4 billion per year to the Treasury by 2029. Commonly referred to as car tax, these new rates are expected to boost VED receipts from the current £8 billion to an estimated £10.4 billion within the next six years, marking a substantial financial impact.

The economic and fiscal outlook report attributes this rise in car tax revenues to factors such as inflation and the expiration of VED exemptions for electric vehicles (EVs) in 2025. As a result, the road tax for electric vehicles will compel over one million additional drivers to pay VED annually, contributing to the significant revenue increase.

Chancellor Jeremy Hunt, in his Autumn Statement to Parliament on November 22nd, revealed that VED cost drivers over £7.3 billion in the last financial year. This underscores the financial significance of VED as a revenue stream for the government.

The growth in electric vehicles in the UK, with over one million currently in use according to data from the Society of Motor Manufacturers and Traders (SMMT), is a key factor influencing these estimations. However, with the upcoming Zero Emission Vehicle (ZEV) mandate effective from January 2024, requiring 22% of all car manufacturers' sales to be fully electric, the landscape is set to evolve.

The OBR document emphasizes that the ZEV mandate is a crucial policy driver for electric vehicle uptake. The mandate will impact sales trajectory, with a gradual increase in fully electric vehicles on the roads until 2035. The report notes, "We judge sales are unlikely to materially exceed this across the forecast horizon due to flexibilities that allow trading of allowances and borrowing against future allowances in the first three years of the mandate."

As the EV landscape evolves, these VED estimations may witness adjustments in the years ahead. With the Treasury poised to gain significantly from VED, the evolving dynamics of electric vehicle adoption and related policies will play a crucial role in shaping the financial landscape in the automotive sector.

Notes to the editor

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