Vehicle Excise Duty (VED)

This briefing paper explains the policies of successive governments towards the setting and design of vehicle excise duty (VED) for cars and other vehicles. It gives information as to the exemptions from payment and how the Government enforces its collection. It also describes the most recent change to VED: those introduced for new vehicles from April 2017 and those affecting diesel vehicles from 2018.

Motoring taxation is made up of two elements: vehicle excise duty (VED) – a tax on ownership; and fuel duty – a tax on use. Although historically the road fund tax was considered a hypothecated tax to pay for the building and maintenance of the road network, this has not been so since 1937 and it is now a general revenue raising tax. Changes to the rates and coverage of the duty are made in the annual Finance Acts.

The Labour Government introduced a new system of VED, based primarily on carbon dioxide emissions, for cars registered on and after 1 March 2001. This ‘graduated’ scheme was extended in May 2009 and a new ‘first year rate’ was introduced.

The Coalition Government introduced a road user levy for vehicles weighing more than 12 tonnes from 1 April 2014 accompanied by a VED rebate, and from 1 October 2014 it abolished the paper tax disc, with minor knock-on changes for the VED rules.

In the first Budget of the Conservative Government in July 2015 the Chancellor announced a further reform of VED from April 2017, which effectively abolished the graduated system for new cars registered after that date. From the 2020-21 financial year income from VED in England will be hypothecated to a new road fund, to contribute towards the costs of the Strategic Road Network (SRN). In the 2017 Autumn Budget the Chancellor announced new VED rates for the most polluting diesel cars, to take effect in 2018.

All rates can be found in DVLA leaflet V149.

Other research briefings on fuel duty, tax and roads-related issues can be found on the Parliament website.