New plans from Westminster could see Vehicle Excise Duty – commonly known as ‘road tax’ – abolished and replaced with substantial, upfront fees.
The proposals would see the prices of smaller cars rise by more than £1,500, and drivers of thirsty sports cars and vehicles with large engines pay whopping fees of £23,000.
Drivers of fuel-efficient cars would be in line for a government subsidy of £750 under the proposed plans, which are being heavily backed by the Liberal Democrats.
Tim Leunig, a special adviser to the government who wrote the paper, believes that it would give manufacturers a stronger incentive to produce more fuel efficient cars.
Annual VED charges raise almost £6 billion a year for the Treasury, but because of a shift towards vehicles which have low rates of VED, or in some cases are exempt from it completely, the government is said to be re-thinking how it generates revenue from motorists. The Office of Budget Responsibility cut its forecast for VED revenues this year by £100 million a year from 2014/15 to reflect the shift towards more environmentally friendly cars.