Motorists who buy petrol-guzzling sportscars, 4x4s and other large-engined vehicles should have a big one-off emissions charge added, allowing annual road tax for all to be scrapped, a new report states.
The scheme would work by imposing a one-off purchase tax on new cars that produce large volumes of pollution – in turn, some of the money raised would be used to subsidise the purchase price of more fuel efficient motors.
The controversial plans would hit those who buy larger vehicles hard, as the most-polluting cars would attract huge tax burdens – some Aston Martin models for instance would face a new sales charge of an eye-watering £23,000. But it would end annual road tax in the form of Vehicle Excise Duty (VED).
Petrol-guzzlers: VED should be scrapped and replaced with a one-off vehicle tax, according to a think-tank The report drawn up by government adviser Tim Leunig for think-tank CentreForum and backed by the Liberal Democrats would still result in many smaller cars seeing prices rise – although, some efficient motors would get a government subsidy of up to £750.
A rate of £50 would be charged for every gram of CO2 a car produces over a pre-set point, which is proposed to be 94g/km.
For example, this would result in the price of a 1.25 litre Ford Fiesta rising from £9,084 to £10,734. But its 1.6 litre diesel version would become cheaper, falling from £11,845 to £11,495.
And around 150 luxury models, which have total annual sales of over 5,000 vehicles, would be the first to face a registration fee of over £10,000, hitting those who want to buy one of these types of car hard.
Motors that currently have similar prices would also change sharply under the new rules. Mr Leunig cites Ford and Chrysler people-carriers, currently both on sale for around £28,000.
Under the new scheme, the Chrysler would be £3,950 more expensive than the Ford, because it has much higher emissions.
The £750 subsidy would be added to fuel-efficient cars, such as the Toyota Yaris.
According to statistics from the report, replacing VED with a one-off emissions charge on new cars would cut 2.6 per cent off total UK carbon emissions and lower running costs for motorists.
CentreForum says its scheme will give car manufacturers a big incentive to produce more efficient vehicles which in turn will lower costs for motorists, who over time will see a reduction in their fuel costs.
It has calculated that the scheme will cut fuel use by around 450 gallons over a 100,000 mile lifetime, saving motorists around £2,700.
Toyota Yaris: Buyers would get a £750 subsidy because of how fuel efficient the model is
Ed Davey, Secretary of State for Energy and Climate Change, said: ‘I welcome this report. It is exactly the sort of innovative thinking we have come to expect from CentreForum.’
Mr Leunig said: ‘More efficient cars save motorists money and reduce global warming. What's not to like?’
The proposals come as the Treasury considers the best measures to replace VED in response to the increasing fuel efficiency of modern cars.
A fall in tax revenues has hit the coffers hard as more motorists choose smaller, cleaner cars that incur lower rates of duty.
Currently, VED raises almost £6billion a year for the Treasury. However, forecasts show this will fall as road tax rules give drivers a financial incentive to choose low-emission vehicles which attract lower rates of VED.
Some vehicles fall into Band A of VED and as a result, pay no tax at all. Cars such as the Chevrolet Volt and Vauxhall Ampera fall into this category.
The Office of Budget Responsibility this year cut its forecast for VED revenues by £100million a year from 2014/15 due to more motorists choosing more economical cars.
Mr Leunig’s paper for the Centre Forum think-tank was written before his appointment as a government adviser.