RESIDUAL values on large-engined cars could plummet if the Government significantly increases their Vehicle Excise Duty. Both CAP Motor Research and Glass's Guide agree that the future shape of residual values hinges on the size of the differential between VED rates.

Mark Cowling, CAP's chief economist, said: 'The scale they are talking about at the moment with a £50 variation will not effect residual values. But if we reach a £150 gap or more against larger-engined cars, then we will start seeing more of an impact on the used car market. If the day ever comes when a 4.0-litre supercharged vehicle costs £1,500 to tax there will be some severe implications for the residual value.'

Adrian Rushmore, Glass's Guide editor, said: 'If we start to see the larger-engined vehicles move into higher tax brackets, then residual values will be hit. It's all a question of degree.' Contract hire companies have already warned that leasing rates could rise if the Government increases VED for large-engined cars.

The British Vehicle Rental and Leasing Association believes higher VED rates for larger cars may deter private motorists from buying these models on the used market, hitting residual values, and a spokesman said contract hire companies risked residual losses because they are writing contracts today for cars which will hit the used market under the new VED regime.