/ Motoring

How should car tax be calculated?


New diesel car owners may have to pay up to £520 more a year in tax under new rules that came into force last week. Should diesel drivers pay more? Or is there a better way calculated vehicle tax?

New diesel cars that do not comply with future RDE2 emission levels will be charged more tax in the first year of ownership – potentially up to £520 – the Chancellor, Philip Hammond, announced in his autumn statement last year. And the new rules have just come into force.

But this rule only applies to new cars registered after 1 April 2018. A completely different system of tax, based on CO2 emissions, applies to cars registered between March 2001 and March 2017; and a third set of rules applies to cars registered between 1 April 2017 and 1 April 2018.

Confused? You’re not alone. As our car expert Adrian Porter explains in our recent guide to the changes ‘car tax is getting confusing‘.

Might there be a simpler – and potentially fairer – way to pay vehicle tax? Here are some ideas.

Replace it with a fuel duty

We already have the highest fuel duty in Europe – 58p per litre – but there have been calls to increase it further and abolish vehicle tax at the same time.

Proponents argue it would make us drive more efficiently and safely, as some drivers would use less fuel. As discussed here on Which? Convo in 2010, a fuel duty would probably mean we’d all be forced to think twice before jumping in the car – which could also encourage alternative forms of transport.

And should drivers pay more for diesel at the pumps because it produces more NOx?

Base it on mileage

A similar idea is to charge motorists for how much they actually use the roads. That way those who use the roads more would pay more – and those owning cars but who use them less often would pay less.

Commonly known as a ‘vehicle miles travelled tax’, it’s already levied on heavy goods vehicles (HGV) in many European countries and some US states. New Zealand applies it to diesel cars too.

But, as critics and privacy advocates point out, it means cars would have to be tracked by the government.

Higher rates for commercial vehicles?

Some campaign groups argue large commercial vehicles, such as HGVs, are massively under taxed based on the amount of damage they do to the roads.

‘The standard 44 tonne HGV, which is the industry workhorse, causes 136,000 times more damage to road infrastructure than a Ford Focus because the damaging power rises exponentially as weight increases’, The Campaign for Better Transport claims.

HGVs do £6bn more in damage to UK roads than they pay in tax, the group claim. And their solution: a distance-based levy for heavy goods vehicles – like what’s in place in Germany.

So what’s the answer? How would you calculate car tax? Could it be simplified and just levied when we buy fuel? And should business and industry be paying more to use our roads?

This is a guest contribution by Oscar Webb. All views expressed here are Oscar’s own and not necessarily also shared by Which?.


This will be a controversial Convo, Oscar, but an important one. We recently had a Convo about electric vehicles, and there is little doubt that more of us will be driving hybrids or electric vehicles in the next decade: https://conversation.which.co.uk/motoring/super-fast-charging-points-for-electric-vehicles-national-grid/

I believe that vehicles should be taxed on the basis of the environmental costs of manufacture and disposal, fuel consumption and on their emissions of toxic materials, so I support the present system of both taxation of fuel and vehicle excise duty.

A great deal has been done to improve petrol cars since they ran on leaded fuel, emitted carcinogenic chemicals in their exhausts and offered poor fuel economy. The introduction of efficient engines that run happily on unleaded fuel and catalytic converters that remove most of the harmful materials in the exhaust has made a great deal of difference. Perhaps we could achieve similar advances with diesel engines. No-one can have failed to notice that modern diesels don’t produce clouds of black smoke when they pull away from the lights. Unfortunately, the smaller and invisible particulates in the exhaust may be a bigger problem than visible smoke, but that might be resolved. Emission of nitrogen oxides has been significantly reduced in various ways. I don’t think the diesel engine is dead yet and it seems unlikely that we will see many petrol or electric HGVs on the roads soon. Hopefully taxation will adapt to reflect improvement in vehicle design in future.

Now that we are looking forward to warmer weather I hope to average 60mpg in my modest diesel car, helped by minimising driving in built-up areas and driving economically.

I would have thought that the brake disk wear would have been less with electric vehicles since they can use very significant regenerative braking instead of brake pads.
(Along the same lines (but opposite) that auto gearbox ICE cars use more braking as the engine braking doesn’t have the quite same effect as manual gear engine braking?)
Fascinating stuff 🙂

Thanks Oscar. It’s good too see links to scientific papers posted here. Bedtime reading. It’s a very complex subject because so many factors are involved. As Neil says, regenerative braking will cut down on disk (and pad) wear and decrease particulate production. Electric braking (without recovery of power) could have been used for petrol and diesel cars years ago.

BMW’s Brake Energy Regeneration system is a system that only charges the battery when the car is coasting, braking, or decelerating. During acceleration and whenever possible during other driving the alternator is decoupled from the drivetrain, leading to better fuel economy and improved performance.“. Regenerative braking clearly works efficiently only when the battery is not fully charged, so is more likely to be effective on an all-electric car.

Interesting about the extra weight of an all electric car, so unlikely to be as fuel-efficient as a fossil car. The fuel for an electric car starts, often, as fossil fuel and then goes through several stages each introducing an inefficiency: providing heat for steam to drive a turbine, drive to generator, hv transmission (losses in lines), transformed to local distribution, losses in lines, charging vehicle battery (conversion losses) then efficiency of drive system. Compared to fossil fuel being used directly in an IC unit. So is it just about local pollution? Which could be dealt with by hybrid cars with a decent electric range just to get round town.

It’s perfectly possible to use electric braking where no power is recovered and the energy is dissipated as heat, much in the same way as with friction braking but without particulate generation and the need for replacement of wearing parts.

I’m glad BMW’s system only works when coasting, braking or decelerating because it would not be much help when accelerating. I also doubt that the alternator is decoupled from the drivetrain, it will just create less mechanical load when there is little electrical load. I wish marketing people understood what they are talking about.

It’s well established that producing electricity is not a very efficient process. Hybrid vehicles do seem like a good option for those who do drive in built-up areas, but we have not discussed the possibility that drivers could use engine rather than battery power in cities with poor air quality.

I’m not sure if Beamers do it, but some eco cars actually have a tensioner pulley that can be backed off with a solenoid much like that used to engage drive on ride-on lawnmower blades.. Doing that made a very worthwhile BHP to the back wheels difference in rally cars about 4 years ago – and I expect now it is happening for real in a number of road cars.

Whether you decouple the alternator mechanically or electrically does not seem an issue providing it results in an increase in overall efficiency.

“During acceleration and whenever possible during other driving the alternator is decoupled from the drivetrain, leading to better fuel economy and improved performance.” It would be interesting to know how it works because that conveys little information to me.

I presume that during normal driving, with the engine producing power, all the electrical loads are supplied by the battery with the alternator not supplying any charge, so not using any engine power. When the car is coasting or slowing the alternator then is energised to recharge the battery using some of the cars surplus kinetic energy. It is said to improve fuel consumption by somewhere up to 3%. I doubt it is unique to BMW.

Assuming we are referring to conventional rather than electric vehicles, the alternator will be charging the battery all the time the engine is running. After starting the charging current will decrease rapidly and when fully charged the current will be small and largely unaffected by whether the alternator is supplying power for lights, heated windows etc. Continuous slow charging is a good way of ensuring that the battery will have a long service life. Lead-acid batteries need to be kept as fully charged as possible and mechanical or electrical disconnection of the alternator does not seem a good idea to me.

I’m interested in the system mentioned by Roger. One system that I have seen on water pumps (not on cars) is use of an electric clutch to disconnect the drive.

http://www.greencarcongress.com/2006/09/bmw_introduces_.html. As far as I can see the alternator only charges on coasting or braking.

Thanks Malcolm. That’s what it says. If this is true, the battery will be cycling between different states of charge. AGM batteries handle this better than traditional batteries but it does shorten their life. A better approach would be to use a super capacitor, probably in conjunction with a battery. We are a bit off-topic but I’d be happy to continue in The Lobby.

The battery is cycled. Those I know with BMWs and this system have had no problem with battery life.i

“One system that I have seen on water pumps (not on cars) is use of an electric clutch to disconnect the drive”

Almost all crankshaft belt-driven aircon pumps work that way – solenoid clutch. Back in carburettor days, as the compressor cut in there was a simultaneous increase in the idle opening of the butterfly, maintaining tickover RPM.

Air conditioning is a more familiar example than mine. This does make a considerable energy saving.

Malcolm – My information that cycling reduces the capacity and life of all lead acid batteries came from a guy working for Lucas research, and is backed up by everything I have read and plenty of personal experience with batteries. One of the reasons that the introduction of alternators increased car battery life from the couple of years that was common in the days of dynamos is that apart from when starting, the alternator can usually provide all the power needed to run electrical loads.

A similar idea is to charge motorists for how much they actually use the roads. . Well, we already do, in a way that also takes account of the efficiency (mpg) of a vehicle; on fossil fuels this is through duty and 20% vat – the more miles you drive, the more you pay. Except, of course for electric vehicles. Whilst much of our electricity is still produced by fossil fuels – principally natural gas – this is not reflected in the price electric drivers pay. At worst, they pay 5% vat and no duty. and those power stations that use gas still consume natural resources and produce pollution.

I wonder whether anyone spending the large amount of money required to buy a new car really bothers about the extra cost of VED. And companies that purchase cars will no doubt look at the balance between diesel economy and extra tax to see which is most cost effective. Perhaps it is the perception of diesels being “dirtier” that has caused the reduction in sales; a better way of responsible reaction than being persuaded financially.

I’d favour a fixed VED for all private vehicles, and an equal tax on all fuels that deals with the mileage issue. Simply loading the VED or initial price of a larger, less efficient, large engined or expensive car simply allows those with money to evade the environmental responsibility, just as paying to pollute in a low-emissions zone does.

You point out that producing electricity for electric vehicles consumes natural resources yet the drivers only pay 5% tax on electricity. Buying a large luxury car that uses more fuel is not that different from paying to pollute, so I don’t see any point in having a fixed VED for all private vehicles.

The “large luxury car that uses more fuel ” pays for that in fuel vat and duty. But if it complies with the latest emissions regulations then that is better than an older more polluting car that can pay to pollute in a low emissions zone. The regulations should specify the maximum pollution allowable, certainly in towns and cities, and force engine designers to come up with solutions that meet those. Not just for cars, but commercial vehicles as well including HGVs and public transport.

I see an intermediate solution to greatly reducing pollution in populated areas to use hybrid vehicles that use electric in that environment and switch to fossil power elsewhere.

The manufacture and disposal of large luxury cars will cost more than that of smaller ones. Larger cars occupy more space when parked on the street, etc, etc.

Much of the car can be recycled and they may well be more durable, and worthy of repair, than smaller more stressed cars. I don’t think the argument is that simple. The same logic could be applied to houses; those larger ones take up much more space and require far more materials and labour to construct. Would it be better to divert the land and effort into small houses for those trying to get on the ladder? Unless regulation is introduced of course it won’t happen (funny how concerned that the EC was with restricting vacuum cleaners to 900W by regulation but never considering restricting the size of cars or their engines 🙂 )

Yes, there are many factors involved but I doubt that anyone would be able to show that running a large expensive car is good from an environmental point of view. Maybe that is the reason for the current additional charge levied on expensive vehicles: “You have to pay an extra £310 a year if you have a car or motorhome with a ‘list price’ (the published price before any discounts) of more than £40,000.” https://www.gov.uk/calculate-vehicle-tax-rates

I wonder if anyone prepared to spend £40k+ on the car they want would be put off by the extra tax? It really is a wealth tax as it is not related to a car’s pollution or economy. I wonder if the extras many buy with a car that tip the vehicle over the £40k list price qualify for the bimposition of the penalty. And presumably all cars are included – including electric (list price is before the Govt. subsidy). So it seems a pointless extra tax, just to raise money. A BMW electric and range extender go over 40k, despite nil or very low CO₂ but attract the high tax rate.

You can buy a luxury BMW 7 series £65k 41 mpg (Honest John) 128 CO₂ or a £30k VW Golf 35mpg 148 CO₂. Which might be better for the environment?It is far from clearcut.

Many other things we do are bad for the environment – houses that are too large with expensive heating, or only one person occupancy say. Cruise ships, holiday flights, light aircraft, the throw away culture, …..

I’m always wary about statistics and wonder if these are representative. There is an approximately linear relationship between fuel consumption and carbon dioxide emission: http://wltpfacts.eu/link-between-co2-emissions-fuel-consumption/.

The £310 supplementary charge, which applies for five years, does apply to electric vehicles with a list price of £40k or above but owners can benefit from grants for purchase and charging points.

Just examples. I haven’t trawled through all contenders. I’m simply suggesting large luxury cars might not necessarily be bad boys. We need to also look at car durability as well as initial cost and basic performance. Grants for purchase come from taxpayers of course, as to the costs of charging points.

I would like to see some relation between the tax and the footprint on the road (and in car parks), particularly the width of vehicles. In particular this would help cyclists on old roads many other road users would benefit if the trend to using SUVs as runabouts was slowod.

Basing tax on the list price of the car I thought had disappeared. At one stage someone had the harebrained idea of P11D company car tax being related to the new list price. Out of the woodwork – almost literally – came 1939 Rolls Royce as a company car – guess what? P11D value of almost zero.

I have bought a luxury car. Because of opulence? No, but because at the time I could find no other car which – without significant modification – gave me the ability to get in and out without additional aid. I get in the car and press the start button – and as part of its start-up routine, the steering wheel comes my way a few inches and the seat goes forward a few inches – the reverse happens after switching off as I uncouple my seat belt. I bought it second hand in Nov 14 – it is a June 2012 model and it cost me around £20k. However, it is “tooled up” – and the list price of that car in 2012 with this extra package was £75k. Incidentally this extras pack (rrp £18k) is almost all safety-related – driver monitor, stick shaker, loads of sensors and proximity detection – self-applied emergency braking, adaptive cruise control, lane keep, blind spot monitoring, seat belt pre-tensioners… I could go on. Should I be penalised for snapping up a bargain which, thanks to its hybrid drive, gives me better fuel economy with lower emissions than a Repmobile of the same era?

Edited to add that I budgeted to keep this baby for probably until I stop driving – so included apart from servicing the cost of a replacement set of hybrid batteries, despite the sales pitch being that batteries will outlast the rest of the car.

Paul Hartwright says:
21 April 2018

I need my diesel Defender 90 to push a caravan uphill to its parking place. I do about 3000 miles a year in it but have to pay the top rate for vehicle tax which is £562 per year.

I also have Land-Rover Defenders…

Some folk will ask why?..

Simple.. I’m British & want to drive a car that was designed & made in Britain & thus support jobs in the UK. It also fulfils our family holiday requirements and hobbies as it will go almost anywhere…

We have owned our 110 station wagon for nearly 8 years… and had to put up with swingeing increases in road tax during that time… and for this we now don’t even get a “Guinness label” to stick in the windscreen!

So… why do I have to pay £555 a year in Road Tax? Emissions? Wear on the road?…

What a load of codswallop… as Paul indicates, his mileage is low as is ours… even if the car only went to the garage for an MOT once a year, or you did 20-30k miles a year as a rep you pay the same tax…… Foul!

My 87 year old Dad had to pay similarly for his Discovery… which did less than 2000 miles a year.. and why did he have a Discovery? My Mum was severely arthritic.. she could not get in or out of a “normal” car….

So does that rep Prius owner who does 20-30k per annum.. (largely on Motorways… when it ain’t running on batteries ..who pays no road tax) produce less CO2 or do less wear & tear to the roads than Paul in his 3k a year 90… me in our 110 or my Dad in his Discovery? I think not….

Put the damn tax on the fuel… the more you use … the more you pay… to quote the Compare the Market Meerkats “simples!”

Martin, about 66% of fuel “cost” is tax, so the more miles someone does the more tax they pay. I don’t see the point about VED that varies so much. I think I’d favour a single annual fee to put your car on the public road, whatever its motive power, and let fuel tax be the “persuader”. If more incentive is required then simply ban engines that exceed limits But I’d be interested to hear others’ views.

I drive a thirteen year old ford fiesta and pay the full road tax even though I am retired and do not do heavy mileage. By comparison friends of mine driving top of the range large vehicles only pay £30.00road tax. I would add I drive an older car as it is all I can afford. A point missed by the Government. Not a fair playing field

Tax and duty on a large vehicle will probable cost around 10p or more a mile in fuel duty and vat alone – £1000 in 10 000 miles. This is where they pay. The older car is paying more in VED for the emissions it produces.

Johno says:
28 May 2018

Why should a driver of a big engine car, with low annual mileage, pay more than a smaller engine car with high mileage? Why not abolish road tax and increase fuel duty? The more you use the roads the more you pay at the pumps…. No avoiding paying, and no expensive road pricing schemes either..

I feel those who use the roads a lot should pay for their upkeep. So why not put the cost on the fuel. Which would be easier to collect. I have a 15 year old Chrysler PT Cruiser with a 2.2crd Diesel Engine which on a good run does 60 mpg. But I am not happy paying £21 per month Road tax as I only do about 4,000 miles per year. Plus I understand new Diesel engines are far less polluting so why should they be penalised. Plus the Government were trying to persuade people to drive diesels as thought less polluting. This was the thinking when I bought my PT Cruiser in 2002. Which is still running very well and don’t wish to change it.

Given the tax already on motor fuels, I’ve often wondered what, if any, useful purpose is served by a separate vehicle tax.

If, however, we all changed to electric vehicles overnight, then the fuel duty would no longer be paid and additional state revenue would need to be raised elsewhere.

Diesel engines are out of favour at present, but as you say the latest ones are much better. Here is some information about the emissions standards for current and older diesel and petrol cars: https://en.wikipedia.org/wiki/European_emission_standards#Emission_standards_for_passenger_cars

I would like to know more about small particulates – often referred to PM2.5 – which are reckoned to be a greater hazard than larger soot particles.

This comment was removed at the request of the user

Thanks Duncan. We have air quality monitoring stations around the UK, especially in city centres and recent figures can be found on this website: http://aqicn.org/city/london/
Figures vary greatly from day to day and weather conditions seem to be an important factor.

Vehicle Excise Duty is based on the amount of carbon dioxide produced by engines and not the amount of pollutants they produce and since carbon dioxide emission is directly related to fuel consumption, this is taken care of in fuel duty.

My diesel car does not produce visible soot – the tailpipe is still clean after nearly six years. I have no idea how much invisible particulates (PM2.5) it is chucking out, or how this compares with other models.

At present we just look at PM2.5 as a class of particulates but in future we will probably see that some are more harmful than others, depending on their chemical composition.