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Labour U-turn on car tax rises

Plans to charge millions of motorists increased vehicle duty will be delayed as part of the Government's tax-cutting package to revive the ailing economy, The Daily Telegraph has learnt.

By Andrew Porter, Political Editor
Last Updated: 11:30PM GMT 10 Nov 2008

Changes announced in the Budget would have meant that from next year, all cars that had been on the road since 2001 would face above-inflation rises in Vehicle Excise Duty (VED).

This was billed as a "green tax" on high polluting gas guzzlers, but it quickly emerged it would hit the drivers of ordinary family saloons with tax rises of up to £245 a year.

The "poll tax on wheels" has been likened to the 10p tax fiasco.

However, it is now understood that the increases for cars bought after 2001 and before 2006 are to be delayed for at least a year by Alistair Darling, the Chancellor.

The extra duty will still apply to cars bought since that time, but the delay to the retrospective element will still be seen as a significant climbdown. It will be announced in Mr Darling's Pre-Budget Report, expected next week.

The Daily Telegraph launched its Fair deal for drivers campaign in response to the changes, which would have left millions of drivers considerably worse off for little environmental benefit.

The new move should deflect a rebellion by Labour MPs, who feared drivers were being targeted unfairly at a time of economic hardship.

The Chancellor is still finalising the precise nature of the changes, but senior Treasury sources confirmed that the retrospective element of the plans will be revised. Mr Darling will still argue that "green taxes" are important, but that the unfair nature of the VED package will be addressed.

The Budget plans led to an outcry among motoring groups when it emerged that family saloons were included in the tax rises. Older cars with 1.5 litre engines or larger were affected as well as gas guzzlers.

It was the retrospective aspect of the tax, that meant car owners would be penalised for decisions they had made up to seven years ago, that most infuriated MPs. For example, a Ford Mondeo registered between March 2001 and March 23 2006 would attract more than double its present level of VED from 2010.

The VED changes would have affected almost 70 per cent of Britain's 26 million drivers. The AA estimated that increased VED for higher polluting vehicles purchased after 2001 would make cars valued up to £2,100 almost impossible to sell.

Some at No 10 were dismayed that Mr Darling announced the unpopular plans, but Mr Brown has repeatedly tried to defend the measures. However, in the summer, as Labour plumbed record depths of unpopularity, the Chancellor gave assurances to worried Labour MPs that he would look again at the proposals.

The Prime Minister has used the cover of the economic and financial crisis to ditch unpopular policies such as 42-day detention for terror ism suspects. In the summer he also bought off a rebellion over his plans to abolish the 10p rate of tax.

Labour strategists know that they have to show they are on the side of those trying to make ends meet and the middle England vote is characterised by families who use a car for the school run – cars that would be taxed under the proposals.

News that VED will be the latest unpopular policy to be reviewed came as Mr Brown dropped his strongest hint yet of plans to cut taxes to help families struggling through the downturn. He promised yesterday that ministers were looking "at everything" that could be done to make things easier ahead of next week's pre-Budget report.

The Prime Minister told GMTV: "Of course we are going to look at everything but that's a matter for the Budget and the Pre-Budget Report. What I'm determined to do is get all countries around the world trying to get their economies moving again.

"And one way you can do that is by putting more money into the economy by tax cuts or public spending rises but that's something we have got to look at in the next few weeks."

Asked about rumours that VAT may be cut, he said: "We're looking at everything we can to see how we can help people."

A poll for The Times today shows the Tory lead down by nine points since the Labour's win in the Glenrothes by-election and last Thursday's big cut interest rates cut. It put Labour on 35 per cent, up five points, with the Conservatives down four at 41 per cent. The Liberal Democrats are up one point at 16 per cent.

Only delayed mind you - until after the next election when Liebore scrape through another manufactured win.

And delaying the rise will do nothing for the used values of 2001-06 family cars which have totally collapsed.