Budget car tax changes could see petrol and diesel drivers pay up to £5,490 more

Chancellor Rachel Reeves' latest Budget could see owners of the most polluting vehicles paying up to £5,490 more in tax, aligning with the 2035 ban on petrol and diesel car sales. From 1 April 2025, tax rates for cars, vans, and motorcycles, including hybrids and those less than a year old, are set to increase.

Fully electric vehicle owners, currently enjoying a low Benefit-in-Kind (BiK) tax rate of 2%, will face a hike to 5% by the 2027/28 financial year, with subsequent 2% annual increases until 2029/30.

The tax structure for hybrid vehicles is also undergoing a major overhaul, with rates being determined solely by CO2 emissions, moving away from the consideration of zero-emission mileage. As a result, vehicles emitting between one and 50 grams of CO2 per kilometre will see their rates jump to 18% in 2028/29 and 19% in 2029/30.

All other vehicle bands will experience a one percentage point rise annually over these years, with the maximum rates reaching 38% and 39%.

This shift is part of the broader strategy to phase out the sale of petrol and diesel vehicles by 2035. However, Richard Smith, MD of the Road Haulage Association (RHA), has expressed concerns about the impact on operators amid an already difficult economic environment, reports the Express.

He commented: "We are disappointed that the Heavy Goods Vehicle (HGV) VED rate and the HGV Levy will rise with RPI from April 1, 2025."

He added, "This will add further cost pressure on vehicle operators at a time when the industry is facing a range of other rising costs."

In the Chancellor's latest Budget, a staggered car tax system aims to incentivise zero-emission vehicle purchases. Starting with the fiscal year 2025-26, zero-emission cars will be charged just £10 in the first-year rate, while hybrids emitting one to 50 grams of CO2 per kilometre face a hike from £10 to £110.

Cars puffing out over 76 grams of CO2 per kilometre will see their rate double. UK Director at Transport and Environment, Anna Krajinska, welcomed the measures stating: "Increasing the first-year Vehicle Excise Duty differential between polluting and electric cars, for which the UK currently has one of the worst differentials in Europe, is exactly the right move."

She added, "The future is electric, and tax policy needs to reflect that. Meanwhile, extending preferential rates for electric cars through the UK's very successful Benefit-in-Kind policy is a smart decision to sustain EV demand for the years to come."

Furthermore, there's a commitment to cease the sale of new internal combustion engine-only vehicles by 2030 and promises over £200 million for public electric vehicle charging points, plus extra funds for local on-street charging initiatives.