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Summer Budget: Government revamps VED to establish new Roads Fund

Date: 09 July 2015

In the first all-Conservative budget for 20 years, Chancellor George Osborne has revealed a new Vehicle Excise Duty system, which will create a Roads Fund, to be operational from 2020-21.

The revised VED will apply to all new cars registered after April 2017, with different rates, depending on their CO2 output.

Under the terms of the scheme, drivers will have to pay anything up to £2,000 in the first year, on their new vehicle. After that, there will be three duty bands - zero emission, standard and premium. Owners of zero-emission cars will not pay anything, while standard cars - which covers 95% of all cars sold in the UK - will be subject to a £140 annual charge.

The premium rate is applicable to those cars with a list price of more than £40,000. Drivers of these cars will pay a £310 supplement every year for the first five years, before reverting back to the standard rate

Osborne described the new measures as "a major reform to improve the infrastructure and productivity of our economy - and deliver a fairer tax system for the motorist.

"Four-fifths of all journeys in this country are by road, yet we rank behind Puerto Rico and Namibia in the quality of our network," said Osborne. "In the last 25 years, France has built more than 2500 miles of motorway - and we've built just 300.

"From the end of this decade, every single penny raised in Vehicle Excise Duty in England will go into that fund to pay for the sustained investment our roads so badly need," he added.

The chancellor said that the country needed a long-term solution for road-building. "Vehicle Excise Duty was used to fund our roads, but not anymore. And because so many new cars now fall into the low carbon emission bands, by 2017, over three quarters of new cars will pay no VED at all in the first year."

CO2 emissions (g/km) First year rate Standard rate*
0 £0 £0
1-50 £10 £140
51-75 £25 £140
76-90 £100 £140
91-100 £120 £140
101-110 £140 £140
110-130 £160 £140
131-150 £200 £140
151-170 £500 £140
171-190 £800 £140
191-225 £1200 £140
226-255 £1700 £140
Over 255 £2000 £140

VED bands and rates for cars first registered on or after 1 April 2017 (cars with a list price of over £40,000 when new pay a supplement of £310 per year on top of the standard rate, in years two-five)