New Vehicle Excise Duty (VED) bands are to be introduced, with revenues eventually going towards a new Roads Fund, the Chancellor
From 2017, there will be a flat rate of £140 for most cars, except in the first year when tax will remain linked to the CO2 emissions that cars produce. Electric cars won’t pay any road tax at all and the most expensive cars will pay more.
There will be three bands - zero, standard and premium - and the Chancellor George Osbourne said the standard rate would cover "95%" of all cars with revenues dedicated to a Roads Fund from 2020-2021.
Osborne said: "There will be no change to VED for existing cars - no one will pay more in tax than they do today for the car they already own."
He added that the £140 rate was less than the average £166 that motorists pay at present.
Osbourne also announced that fuel duty would remain frozen for this year while there would be a consultation on the MOT with a proposal for new cars to have their first MoT after four years rather than three.
However, the Chancellor also announced that Insurance Premium Tax (IPT) would be increased from 6% to 9.5%.
The AA said the increase was an “outrageous hike could well backfire by leading to an increase in uninsured drivers". The IPT increase will mean an extra £17.50 on a £530 average Shoparound premium according to AA benchmark British Insurance Premium Index.
The IPT hike will also hit the costs of breakdown cover and will mean the AA (or customers) will have to pay millions of pounds more per year in tax.