VEHICLE Excise Duty rates on 1.5-litre diesel-engined cars are more for newly-registered cars than they are for those first registered before March 1. This blows a major hole in the Government's VED reforms which are targeted on encouraging the use of new vehicles - and also means that many older, higher polluting vehicles now qualify for reduced rates of VED.

On June 1, 1999 the Government introduced a £55 reduction on the standard rate of VED for cars already on the road and under 1,100cc. In last year's March Budget the 1,100cc threshold was extended to 1,200cc from March 1 this year. And, in the Pre-Budget Report the Government said the 1,200cc threshold would be further extended to 1,549cc with the measure backdated to November 1, 2000. Meanwhile, on March 1 the standard VED rate for all cars already on the road was increased from £155 to £160. Therefore, the VED rate for sub-1,549cc vehicles - above that cubic capacity vehicles are no longer classed as 1.5-litre but as 1.6-litre - is £105 a year.

Also on March 1 the Government introduced its new carbon dioxide-based VED rate for all new cars which favours 'clean' fuelled vehicles and penalises diesel vehicles. A new diesel car with a CO2 rating of below 150g/km registered today will pay £110 VED - £5 more than if registered prior to March 1. Therefore the 1.5 D (1,527cc) 139g/km of CO2 engine found in both the Citroen Saxo and Peugeot 106 (138g/km) and the 1.4 TDI (1422cc) 119g/km engine found in the SEAT Arosa, Volkswagen Lupo and Volkswagen Polo (120g/km) are all caught in the VED rate trap - VED costs more on these cars post March 1 than pre-March 1.

Stewart Whyte, managing director of fleet consultancy Fleet Audits, said: 'The Government has clearly not thought of this anomaly. In addition millions of older cars which are filthy - some of which don't have catalytic converters because they were first registered before January 1993 - are below 1,549cc and benefit from reduced VED rates.' David Evans, chief executive of the Retail Motor Industry Federation, called the VED move 'crude' because it 'totally failed to recognise advances in engine technology'.

A Society of Motor Manufacturers and Traders spokesman said: 'We remain concerned about the full implications of the new four-band VED system, particularly as it will run alongside the existing system for cars registered before March 1 this year. There is huge potential for confusion in the marketplace.'