RAC response to Summer Budget 2015

On the changes announced in the Budget to Vehicle Excise Duty, RAC chief engineer David Bizley said: “Today’s budget announcement on Vehicle Excise Duty marks a return to the days when road tax was collected and used to fund improvements in the road network. As new cars become more efficient, VED was always destined to bring in less and less money for the Treasury. For the first time, motorists will be able to see for themselves how the money they pay benefits the road network that they use – although it is a pity that we will have to wait five years for the Roads Fund to take effect.

“The devil, of course, will be in the detail but this new transparency has to be a good thing; indeed the RAC has previously called for ring-fencing of funds in this way. The changes to VED will guarantee a minimum level of spending on the roads and this, combined with the Road investment Strategy, suggest that that the critical role that road transport plays both in our economy and in motorists’ everyday lives has finally been given the attention it deserves.

“A big question mark remains however over how the new changes will affect people’s inclination to buy low carbon dioxide emitting, fuel efficient vehicles. For the first year of ownership of a new vehicle, incentives will still exist to select low emitting vehicles but thereafter, a flat rate will apply to most vehicles. We hope the new regime doesn’t undermine the major progress that we are making in reducing carbon dioxide emissions.”

On the continued fuel duty freeze, David Bizley said: “By freezing fuel duty for the rest of the year the Chancellor has continued his good record of helping to ease the travel and transport costs of individual motorists and businesses alike, but this sounds alarm bells for next year as by not extending the freeze further it potentially signals the country’s first increase in duty since 2011.

“While oil prices are expected to stay low, the oil market is notoriously hard to predict so there is always the chance that fuel prices will be considerably higher by the time of the Budget in March 2016 and any increase in duty would therefore have a negative effect on the economy.

"The Treasury's own evidence shows that there is a compelling economic case for retaining a freeze on fuel duty because it is a hugely inefficient way of raising additional revenues for the Treasury. The report from April 2014, ‘Analysis of the dynamic effects of fuel duty’, indicates that the loss of additional taxation revenues resulting from the freeze is offset to a significant extent by the positive impact that lower fuel prices have on GDP.

“Equally, if fuel duty is increased the benefit is offset to a significant extent by the negative impact that higher fuel prices has on GDP. Separate independent studies also highlight the clear link that exists between the cost of fuel and economic growth. If new evidence now exists that contradicts this, we call on the Treasury to make this publicly available for scrutiny.”