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Summer Budget: Tax on new cars to be ring-fenced for road improvements

Lee Baker
08 July 2015
"Every penny" of the reformed VED will be spent on the strategic road network in England

 

The Chancellor today announces that future proceeds of vehicle excise duty will be ring-fenced for roads improvements as part of his plan to raise Britain's productivity.

Bemoaning the fact that Britain's roads are in a worse state than Puerto Rico's or Namibia's according to the World Economic Forum, George Osborne said that funding for road improvements needs to be protected and sustained. By 2017, three-quarters of new cars will pay no VED because they are fuel efficient, which he said penalises those who cannot afford new cars and reduces the money raised.

By 2020, all proceeds from a new VED, that will apply in three bands designed to raise as much as today - just under £4.5bn - will be put into a "roads fund" for strategic roads - a return to the hypothecation of the early 20th Century. Former transport minister Steve Norris warned yesterday that "fuel duty is falling off a cliff" and would need to be replaced by a road user charge. There will be no increase in fuel duty this year.

He said it was a "major reform to improve the infrastructure and productivity of our economy". Julian Huppert, former co-chair of the All-Party Parliamentary Group on Cycling, said the VED changes would mean less tax for the most-polluting vehicles and more for the least.

Osborne also said he would announce further savings for the DfT and other Whitehall departments in the autumn in order to eliminate the budget deficit, but could reveal that the NHS was his spending priority, whilst Defence would also get additional resources.

The Budget is available here and the changes to VED are set out here.

 

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