The government is to introduce new Vehicle Excise Duty (VED) bands for new cars from April 2017 in order to create a new fund to pay for road-building.
By 2020-21, the government says it aims to have spent over £28 billion in "enhancements and maintenance" of national and local roads.
But in order to meet that funding commitment, chancellor George Osborne announced in his Summer Budget speech that the government needs to reform VED for new cars registered from April 2017.
But there will be a lag before the revenue from the new VED bands actually reaches the new Roads Fund – only from 2020-21 will all revenue raised be invested directly into road-building and maintenance via the Fund.
During the first year, a sliding scale of VED applies to new cars, from £0 for cars with no emissions, rising to £10 at 1-50 gCO2/km, £25 at 51-75 gCO2/km all the way up to £2,000 for new cars with over 255 gCO2/km.
After the first year a standard rate will kick in at £140 a year, unless the car emits zero grams of carbon dioxide per kilometre (gCO2/km), in which case there will again be no charge.
Owners of more expensive new cars – with a list price above £40,000 – must also have to fork out an extra £310 a year for the first five years.
Osborne said: "We need a long term solution if we're going to fix Britain's poor roads. Vehicle Excise Duty was used to fund our roads, but not anymore. And because so many new cars now fall into the low carbon emission bands, by 2017, over three quarters of new cars will pay no VED at all in the first year.
"This isn't sustainable and it isn't fair. If you can afford a brand new car, including some of the most expensive models available, you can pay no VED. If you can only afford an older, second-hand car, you have to pay more tax.
"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.
"In total we'll only raise the same amount of revenue from VED in the future that we do today – but that revenue will be secure for the long term."
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