New VED rates set to affect car sales

New VED rates set to affect car salesSince the new Vehicle Excise Duty (VED) came into force in April 2017 rates have now risen from £36 per year to a flat-rate of £140 per year for all petrol and diesel vehicles.

The reason for the change in regulations is to try to encourage drivers to use more fuel-efficient cars. However, while electric cars continue to be tax-free, lower-emission models such as hybrids and plug-in hybrids will still pay between £10-£100 in first-year excise duty after previously being exempt. Also the new tax band only takes into account emission levels for the first year. After 12 months, the VED will be charged at a flat rate. 

So far, this has had resulted in the first downturn in alternatively-fuelled car registrations in nearly 4 years, with registrations down 1.35% compared to April 2016. Private sales also slumped, with registrations by private buyers down by 28%. Businesses and large fleets also registered fewer cars, down 21% and 12% respectively.

It wasn’t just the new VED rates that affected the market. Imported car prices have also been increasing as a result of the Brexit induced depreciation of sterling last year. Combined with decreasing wages and inflation, many households may stall their new car purchase.

Jim Howard, Managing Director at Vehicle Save Contract Hire and Leasing commented: “ Since 2014 car sales have been a boost for the UK’s economy, assisted by low petrol prices and great finance deals. However new increasing rates, stagnant wages and a possible weakened market could mean a possible downturn in car sales in 2017. We anticipate a fall of 5-10% this year” added Jim.