Government taxation review: Tax policy must continue to drive down CO2

Gary Killeen, fleet services commercial leader, GE Capital UK

The Government’s current policy on vehicle CO2 emissions has been a great success.

A complementary system of taxation and legislation designed to encourage the use of lower carbon cars has seen the average tailpipe figure plummet.

However, a recent report by the Institute for Fiscal Studies has identified that this approach may lead to a revenue shortfall of £13 billion by the end of the next decade.

Meanwhile the Government is in the process of looking at new structures for Vehicle Excise Duty (VED).

There is little indication yet what form any changes may take but we believe one thing is certain: the fleet industry should push for a solution that continues to harmonise with other motoring taxes in a way that reduces CO2 figures even more yet remains fair to businesses.

The main strengths of the CO2-based VED regime, the CO2-linked benefit-in-kind taxation system and the CO2 element in capital allowances are that they have all pulled in the same direction over time.

For example, for the last couple of years there has been an unofficial 160g/km target for fleets across these taxes and in the most recent Budget it was signposted that 130g/km is the new figure.

In the not too distant future, we would expect further decreases as new technology is introduced to the new car market.

Also, taken as a whole, the system has worked well because it has been operated so that employers and drivers have almost always known the financial impact of their vehicle and funding choices, often several years in advance.

It has been reasonable, equitable and made good sense.

Any changes to VED – or any of the other CO2-based motoring tax that affects fleets – should continue this consistent and even-handed approach.

A move that radically departs from the successful existing model could potentially create confusion for the industry, and even harm efforts to reduce overall CO2 emissions.