![[Friends of the Earth]](/images/common/foe_logo2.gif)
sgtest11
HM Treasury
The reform of Vehicle Excise Duty to ensure a cleaner
environment
Response from Friends of the Earth
1 Friends of the Earth
Friends of the Earth exists to campaign actively, effectively and imaginatively to protect and
improve the conditions for life on earth, now and for the future.
Friends of the Earth Trust undertakes charitable status research, education and public information
work programmes on environmental and related economic and social issues.
FOE believes that society must be transformed in order to prevent environmental degradation and
alleviate related social misery and economic waste. We must shift the dominant paradigm of
excessive consumption and ever more economic growth, which causes this degradation, misery
and waste, so that the needs of people and ecological systems are met simultaneously, and not
traded off against each other.
Friends of the Earth has campaigned on transport issues for almost twenty five years. Our
principal concern has been the growth in road traffic. Road traffic is a major cause of air quality
problems in the UK at a local and regional level. Road traffic contributes significantly to emissions
of carbon dioxide, the principle cause of global warming. Traffic threatens wildlife directly
through roadkill, through the transport of oil and through habitat destruction from road-building
and road-based development. The manufacture of road vehicles consumes vast amounts of natural
resources. Their use kills thousands of people annually and pollutes river systems. Their disposal
causes further pollution - from tyre dumps to landfill.
Although measures can be taken to minimise many of these effects, it is impossible to eliminate
them. Most impacts of traffic however can be reduced through reductions in the level of road
traffic. Friends of the Earth is therefore campaigning for a 10% reduction in overall road traffic
levels in the UK by 2010, as compared to 1990 levels. Friends of the Earth is also campaigning
for the wider use of technology to reduce the impacts of traffic, particularly through changes to
vehicle design.
Friends of the Earth therefore welcomed the Government's commitment to vary Vehicle Excise
Duty (VED) such that “more efficient, less polluting cars will pay less and less efficient ones will
pay more”1. Friends of the Earth welcomed the Chancellor's announcement in the Budget
Statement of March 1997 that “from next year, VED for the cleanest and smallest cars would
be cut by £50". Friends of the Earth welcomes the opportunity to comment on the detail of the
Government's proposals. We are happy for our comments to be made available to others.
2 The proposed system for new cars
2.1.1 Friends of the Earth believes that a reformed system of Vehicle Excise Duty should take
account of both emissions of carbon dioxide and emissions of regulated pollutants
(carbon monoxide, nitrogen oxides, hydrocarbons and particles).
2.2 Carbon dioxide
2.2.1 Carbon dioxide (CO2) is the principal cause of global warming and the transport sector
is the fastest growing source of CO2 emissions. Friends of the Earth supports the
European Union's 'CO2 from Cars' strategy and believes that, as the UK does not impose
an acquisition tax/rebate on the purchase of new cars (and therefore cannot vary such a
tax), varying VED to encourage the purchase of cars that are more fuel efficient is an
important measure (in addition to the fuel duty inflator and labelling initiatives) toward the
achievement of the strategy's target.
2.2.2 Friends of the Earth believes that the CO2 emission rate (grammes of CO2 per km)
should be used as one basis for VED for new cars. We note that type approval CO2
emission data exist for all new cars, that this data is robust and that use of the CO2
emission rate will provide a fuel-neutral measure of environmental damage (ie: it takes
account of the difference in density between petrol and diesel).
2.2.3 Friends of the Earth believes that VED for new cars should be charged on the basis of
a continuous scale. In reaching this conclusion, we have considered the need for the
system to be robust, long lasting and to give an incentive for all manufacturers to improve
their fuel efficiency. We have carried out our own analysis of the fuel consumption of
different models for the Information and Labelling Group of the Cleaner Vehicles Task
Force. Although this does not translate directly into CO2 emission rates, its conclusions
are broadly relevant.
2.2.4 Graph 1 below shows the distribution of fuel consumption in deciles. As can be seen there
are pronounced tails - especially at the higher fuel consumption end of the graph. Ninety
per cent of new cars have a fuel consumption between 4.5 and 11.5 litres/100 km (and
eighty per cent fall between 11.5 and 6.5 litres/100 km), whereas the fuel consumption of
the remaining ten per cent varies between 11.5 and 19.2 litres/100km. Graph 2 below
shows the number of models in bands of one litre/100km width. Again, it is clear that the
overwhelming majority of cars falls within a narrow range of 6-12 litres/100 km while
there is a small number that achieve 100 km for less than 6 litres and a small number of
'gas guzzlers' with fuel consumption of more than 12 litres/100km.
2.2.5 Friends of the Earth has considered two possible forms of banding. Firstly, models could
be banded in deciles. The advantage of this is that equal numbers of models are allocated
to each band.
2.2.6 The disadvantages are firstly that it would divide the majority of cars into a series of
narrow, seemingly arbitrarily defined bands. As type approval fuel consumption data is
only an indication of the average consumption of cars of a given model, this would
inevitably make the system open to charges that some efficient cars were charged more
than some inefficient ones (the consumption of a given version or an individual car varies
slightly from the type approved figure). Secondly it would place all the gas guzzlers in the
same band, giving the worst performers little incentive to improve. Thirdly, the system
would have to be revised each year - as the average fuel consumption of the new car fleet
improved. This would make it difficult for purchasers to predict the VED they would pay
in future years.
2.2.7 Secondly, models could be banded in groups simply on the basis of their consumption.
This would have the advantage of giving the gas guzzlers an incentive to improve. Such
a system would also not needing updating from year to year. However it could seem
arbitrary at the breakpoints between the bands, especially given the variation of different
versions and different individual cars around the type approved figure.
2.2.8 Charging cars on a continuous scale would have the advantage of giving
manufacturers of all models an incentive to improve. It would not impose arbitrary
breakpoints. Nor would it need updating every year.
2.2.8 One further point about a banded scale of charges is worth making. The Chancellor, in his
Budget speech, talked about reducing VED for the cleanest, most efficient cars. He did
not talk about increasing it for the dirtiest and least efficient cars. However, it is clear from
Graph 2 that in terms of fuel consumption (and presumably CO2 emission rates), simply
reducing duty on the most efficient models would scarcely change the current system. For
example, cutting duty on cars achieving 100 km for less than 6 litres would only affect
67 models - less than 7% of the total range. Cutting duty on all those achieving 100 km
for less than 7 litres would affect 264 models - about a quarter of the range. However, if
motor industry commitments to improve the efficiency of new cars are implemented, the
average fuel consumption of the new model range will overtake this standard within a few
years - making the new system redundant. Neither would there be any incentive for the
gas guzzlers to improve their performance.
2.2.9 Friends of the Earth therefore believes that VED should be increased for the most
inefficient cars and that the best way of doing this would be to charge cars on a
continuous scale according to their CO2 emissions rate. We do not believe this need
impose any serious administrative problems as the charge would be a simple product of
the CO2 emissions rate and the Government's charge scale.
2.2.10 We note, at this point, that many other European countries charge far higher rates of VED
for larger models. Table 1 shows some examples from neighbouring countries
(calculations were up to date in February 1998):
|
Table 1 - VED for different models in selected EU countries
|
|
MODEL
|
UK
|
BELGIUM
|
GERMANY
|
IRELAND
|
|
Suzuki Swift
|
£150.00
|
£65.82
|
£40.51
|
£77.90
|
|
Ford Fiesta
|
£150.00
|
£86.10
|
£52.67
|
£138.02
|
|
Ford Mondeo
|
£150.00
|
£146.74
|
£72.92
|
£257.41
|
|
Ferrari F50
|
£150.00
|
£1082.62
|
£190.41
|
£677.39
|
2.3 Regulated pollutants
2.3.1 Emissions of regulated pollutants by cars (carbon monoxide, nitrogen oxides,
hydrocarbons and particles) are a major cause of air quality problems. Government
analyses suggest that current measures will be insufficient to ensure that air quality targets
are achieved in terms of nitrogen oxides, particles or ozone. Increasing the rate at which
newer cleaner cars are introduced is important in achieving these targets as quickly as
possible.
2.3.2 The use of fiscal instruments to encourage the purchase of new cars is explicitly allowed
in European Directives on emissions standards. However fuel duty levels cannot be used
(save to influence the purchase of alternatively-fuelled vehicles or the balance between
petrol and diesel purchases) as emission rates do not depend on fuel consumption. In
theory, an acquisition rebate coupled with some form of scrappage allowance could be
used to encourage turnover in the car fleet. However, this would cost the Exchequer. In
practice, varying VED is the only fiscal instrument the UK could use to encourage the
purchase of cleaner vehicles.
2.3.3 It should be noted however that type approval data for the emissions of new cars are not
robust indicators of the comparative emissions of those cars. Unlike type approval data
for fuel consumption (and CO2 emissions), the procedure for calculating type approval
data for regulated emissions is not designed to calculate an 'average' emission level for
the model range or production run. It is merely designed to ensure that the model range
complies with European emission standards. Friends of the Earth therefore accepts that
it is not currently possible to use type approval data to discriminate between the emissions
of different models of new car.
2.3.4 However, in the near future it is likely that manufacturers will begin to type approve cars
to meet the Euro III standards. Soon after that, some manufacturers may type approve
cars to meet Euro IV standards as well. Manufacturers have told us that the introduction
of fiscal incentives to encourage the introduction of cleaner cars, coupled with the
introduction of clear zones where dirtier cars were banned, would give them an incentive
to type approve to the new standards, where possible, before they are introduced.
2.3.5 Friends of the Earth believes that differential VED rates should be introduced to
encourage the introduction of Type IV standard cars, in particular. As all new cars
will have to meet Type III standards by the time the new VED system is introduced, there
is little point in giving them a VED incentive.
2.3.6 As emission standards vary between petrol and diesel cars, Friends of the Earth also
believes there is a case for charging different rates of VED to take account of these
different levels of emission. This could be done by charging a supplement for diesel
vehicles, however the level of this may need to be varied depending on the emission
standard the diesel cars meet.
3. The proposed system for existing cars
3.1 For the same reasons as we have outlined above, Friends of the Earth believes that a
system of variable vehicle excise duty should also be introduced for existing cars. This
system should reflect both their CO2 emissions (in so far as this is possible) and their
emissions.
3.2 CO2 emissions
3.2.1 Friends of the Earth accepts that because the collection of type approval data for CO2
emissions has only been a recent requirement, it is not possible to base a system of
taxation for existing cars on their CO2 emission rates. We also accept that because type
approval fuel consumption data is not available for many older cars, this measure cannot
be used either.
3.2.2 Friends of the Earth believes that, as soon as is practicable, the Government should
move to calculating VED in terms of first fuel consumption and then CO2 emissions
and that it should indicate its intention to do so. In the interim, we believe the
Government should use engine capacity as a proxy for these more accurate
measures of CO2 emissions.
3.2.3 We note that the collection of type approval data for the CO2 emissions of new cars has
been a requirement for over a year. We recommend that the system being adopted for
new cars also be applied to cars bought during this period (in order to avoid
creating a class of separately treated cars which will remain an anomaly in the
vehicle fleet for the next 12-15 years).
3.2.4 For similar reasons to those applied above in respect of new cars, Friends of the Earth
believes the system applied to existing cars should be based on a continuous scale. This
would avoid the creation of arbitrary breakpoints or the need to revise the system every
year. Again, since the calculation of the rate of tax would be a simple product of the
engine capacity and the tax rate, it would not be too difficult to calculate.
3.3 Regulated pollutants
3.3.1 As with new cars, the type approval data collected for existing models is insufficiently
robust to enable models to be compared with each other. It can only be used to indicate
which emission standard the model meets. For the reasons outlined above, Friends of the
Earth believes that Vehicle Excise Duty should be used to encourage the purchase
of second hand Euro I and Euro II cars and the disposal of cars that do not meet
even the Euro I standard. As with new cars, VED rates should be used to
discriminate against dirtier diesel vehicles in particular.
3.3.2 However, the use of VED in this way raises some legitimate concerns. Firstly, the
Institute for Public Policy Research (IPPR) has published evidence showing that using
VED to encourage the disposal of older cars will adversely affect poorer motorists2. IPPR
has suggested that VED be abolished and that fuel duties be increased to compensate the
Exchequer for the cost of doing so. Friends of the Earth would not support this move
because, as we said above, VED is the only fiscal instrument that can be used to
encourage the purchase of less polluting cars.
3.3.3 However, we accept that the imposition of higher rates of VED for (older) more polluting
cars will cause hardship. Furthermore there will be a particular discrepancy between the
rates charged to cars made in the late 1970s and early 1980s and the rates charged to cars
made before 1973, which are exempt from VED. We believe the Government should
look again at the possibility of introducing a scrappage allowance for older cars in
order to partially compensate the owners of these cars for the imposition of the new
rates of VED. This scrappage allowance needn't be tied to the purchase of a new car.
3.3.4 Furthermore, Friends of the Earth believes the Government needs to consider how the
many changes being made to motoring taxation (including VED, the fuel duty inflator,
reform of company car taxation and the introduction of road pricing and workplace
charging) will impact on the poorer motorist, particularly in rural areas. Friends of the
Earth believes that the welcome increase in funds for rural bus services is still far from
sufficient and should be matched by further increases in future years.
3.3.5 Secondly, in the imposition of differential rates of VED for existing cars, allowance will
have to be made for owners who upgraded pre-1992 cars to meet 1992 standards by
installing catalytic convertors. Some form of certification will be required to enable those
owners to pay a lower rate of VED to reflect their lower emissions.
4. Other Issues
4.1 Other Vehicles
4.1.1 Friends of the Earth is aware that the availability of type approval data for the CO2
emissions, fuel consumption and regulated emissions of vans, light goods vehicles,
motorcycles, heavy lorries, buses and alternatively fuelled vehicles varies widely according
to the type of vehicle being considered. We are not in a position to advise on the
introduction of differential VED systems for these types of vehicle.
4.1.2 However, in principle, we believe the Government should firstly support new European
Directives that require, as part of type approval, the measurement and collection of CO2
emissions, fuel consumption and emissions of regulated pollutants of all sorts of road
vehicle.
4.1.3 Furthermore, we believe in principle that the Government should more toward varying
vehicle excise duty for each class of vehicle according to the environmental damage that
the vehicle causes. This would complement the introduction of variable VED for cars, the
lower rate of VED charged to cleaner lorries and even the principle of varying charges for
lorries according to the damage they do to roads.
5.0 Conclusion
5.1 Friends of the Earth welcomes the Government's proposals for the reform of Vehicle
Excise Duty. Friends of the Earth believes that Duty on new cars should be charged
according to their CO2 emissions (on a continuous scale) and the emissions standard they
reach. Friends of the Earth believes the Duty on existing cars should be charged according
to their engine capacity (on a continuous scale) and the emission standard to which they
were manufactured.
5.2 Friends of the Earth is concerned about the impact of the proposed changes on poorer
motorists and therefore calls on the Government to consider the case for a scrappage
allowance for old cars, as partial compensation. Friends of the Earth also believes the
Government should further increase rural bus subsidy to increase the availability of
alternatives to the car in rural areas.
Response prepared by Roger Higman
Senior Campaigner (Atmosphere and Transport)
30th January 1999
References