Motoring taxation in the United Kingdom consists primarily of vehicle excise duty (commonly known as VED, vehicle tax, car tax, and road tax), which is levied on vehicles registered in the UK and hydrocarbon oil duty (normally referred to as fuel tax) which is levied on the fuel used by motor vehicles. VED and fuel tax raised approximately GB£32 billion in 2009, a further £4 billion was raised from the value added tax on fuel purchases. Motoring-related taxes for fiscal year 2011/12, including fuel duties and VED, are estimated that will amount to more than GB£38 billion, representing almost 7% of total UK taxation.
Road pricing in the form of congestion charges are in place in London and Durham. However these are generally viewed as usage charges rather than as tax for legal purposes although this interpretation is disputed by the USA and some other embassies in relation to the London congestion charge.
The history of motoring taxation was closely linked to the construction of roads until 1937, since when motoring taxation has been treated as 'general taxation' with roads competing for funds with other departments on an equal basis.
In the early years of the Twentieth Century funding for roads and related infrastructure was drawn mainly from local ratepayers and the tram companies, who were obliged to maintain the road around their tracks under the Tramways Act of 1870. The price of fuel for steam engines had been subject to local coal duties until their abolition in 1889, and centrally controlled during World War I and World War II.
The Motor Car Act 1903 introduced the £1 (£105.00 as of 2019) registration fee for each motor vehicle, which were already also subject to carriage duty if they were not used solely for trade. Carriage duty was paid for a carriage licence which cost £2 2s. (£2.10) for vehicles weighing up to 1 ton, and £4 4s. (£4.20) for vehicles over 1 ton.
A new duty was introduced in 1909 on "motor spirit" (imported petrol), leaving alternative fuels duty-free. The original 1909 rate was 3d per imperial gallon. The 'Road Board' was established in 1910 which could make grants for new roads to local authorities from the Road Improvement Fund as envisage by the Development and Road Improvement Funds Act 1909.
The Roads Act 1920 required councils to register all new vehicles and to allocate a separate number to each vehicle and to Provision for the collection and application of the excise duties. The act also established the Road Fund. The Road Fund Licence (later renamed as Vehicle Excise Duty) was introduced in 1921 and improve roads which had suffered as a consequence of the Great War. It was intended as charge that could be levied regardless of the fuel used to power a vehicle. The Minister of Transport was responsible for collecting and spending the money collected although in later years the Treasury assumed responsibility for the allocation of funds.
Increased transportation of freight by heavy road vehicles also increased the wear on roads and led first to a "wetted tax" for steam road locomotives, followed by the adoption of the recommendations of the Salter Report of 1933 for all heavy vehicles. This addressed a perception that the free use of roads was unfairly subsidising the railway's competitors, through the introduction of an additional axle weight duty within the VED in order to charge commercial motor vehicles for the costs they generated. There were exceptions for vehicles that seldom used public roads, such as agricultural tractors. This annual duty was payable by all road hauliers in proportion to the axle load and had the effect of removing many heavy steam-powered vehicles from the road. It was accompanied by changes in legislation that relieved local authorities of some of their costs through new abilities to set weight and speed limits.
The Road Fund was abolished on 1 April 1937 as a result of the Finance Act 1936, and motoring taxation being treated as general taxation since that date.
The Trunk Roads Act of 1936 had transferred management of 4,500 miles (7,200 km) of major 'Trunk roads' to the Ministry of Transport.
Since 1937 motoring taxation has been treated as 'general taxation' losing its direct connection to the funding of roads and motoring infrastructure.
The Smeed Report of 1962 suggested that "road users should pay the costs that he imposes upon others", including road costs (construction, maintenance, lighting), congestion (the delay the motorist causes to others) and social costs (risk, noise, fumes).
In March of the same year motoring organisations appealed to the Chancellor of the Exchequer to reduce the "disturbingly high cost of motoring" by cutting motoring taxation in the forthcoming budget. Between 1950 and 1961 motoring tax revenue rose from £131 million (£4.41 billion as of 2019) to £730 million (£16 billion as of 2019). By 1966, when taxation revenue reached £1 billion, the Royal Automobile Club were calling for an end to the "crippling spiral of motoring taxation", stating that less than one-third of the revenue was spent on road improvements.
Following extensive and politically damaging road protests in the UK during the early 1990s (including the M11 link road and Twyford Down) the Conservative government introduced the Fuel Price Escalator, which were automatic fuel tax increases above inflation with an objective to stem the increase in pollution from road transport and cut the need for new road building. The policy was retained by the incoming Labour government in 1997 and was withdrawn after the fuel protests of 2000.
Since 2002 policy cues have been given using the income tax system to encourage the purchase of company cars with low emissions.
In March 2005, a graduated vehicle excise duty system, with tax bands based on CO2 ratings, was introduced as an incentive to purchase vehicles with lower emission ratings.
In spite of these protests, the country's economy and motorists' behaviour has generally become less sensitive to the price of fuel at the pump, with economists now estimating it to have a price elasticity of approximately −0.24 (thus an economist would expect that a doubling of the fuel price would stop a quarter of journeys).
Hydrocarbon oil duty, commonly referred to as 'fuel duty' or 'fuel tax' is an excise duty levied on some fuels used by road vehicles in the United Kingdom. Tax is based on fuel volume, rather than as a percentage of the selling price. With the exception of gas, rates don't vary by fuel type. Some vehicles including local bus services, some farm and construction vehicles and aviation pay reduced or no fuel duty. A fuel duty rebate is available for Bus transport in the United Kingdom. In May 2008, UK fuel taxes were the highest in Europe.
Vehicle Excise Duty, also commonly known as 'VED', 'vehicle tax', 'car tax' and 'road tax', is an annual vehicle road use tax levied as an excise duty which must be paid for most types of vehicle which are to be used (or parked) on the public roads in the United Kingdom. Motor vehicles used on public roads no longer need to display a current vehicle licence (tax disc) as proof of payment which will not be issued without prior proof that the vehicle has valid MOT and insurance. A 'Statutory Off Road Notification (SORN)' must be made for a registered vehicle that is not being used on the road, and which has been taxed since 31 January 1998.
VED was introduced in the 1888 budget; the current system, which applies specifically to motor vehicles was introduced in 1920 and was initially paid directly into the Road Fund which was ring-fenced for road construction until 1937, after which time it was treated as general taxation. Since 1999, the duty has been levied according to the CO2 emissions, starting with a reduced rate of £50, the scheme was extended into a graded system in 2001.
The duty raised GB£5.63 billion in 2009.
Customs duties on some Grey import vehicles and vehicle components or spares from outside the EU may be assessed at an additional charge which is then subject to VAT.
The value of a vehicle bought by a company for the dedicated use of its staff is treated as a taxable benefit for that individual, and assessed by HMRC with other income for income tax purposes. Until 2002 their financial benefit was assessed primarily based on price and mileage driven; this was then modified so that vehicles with lower emissions were assessed at a lower value than those with higher emissions. In addition, the taxable allowance for mileage using private cars has remained static.
A significant proportion of new vehicles are bought as company cars, thus this method of charging is not only aimed at encouraging companies to use "cleaner" vehicles, but, when sold on the second-hand market, these vehicles will filter through and raise the efficiency of the national 'fleet' .
In London and in a small number of other places road usage charges in the form of road pricing, however these are generally viewed as 'usage charges' rather than as tax for legal purposes although this is disputed in relation to the London congestion charge by the USA and some other countries.
The London congestion charge, which applied to most vehicles entering parts of Central London was introduced in 2003 with an extension into West London in 2007. The current daily charge is £11.50. The total receipts from the London Congestion Charge for 2006-07 was £213 million (provisional figures), which, after operating costs, left £123m of hypothecated revenue for London transport schemes.
Towards the end of 2006, the Mayor of London proposed the introduction of a variable congestion charge. Similarly to vehicle excise duty (VED), it would be based on emissions of carbon dioxide in grams/km. This would reduce or eliminate the charge for small and fuel-efficient vehicles, and increase it to up to £25 a day for large, inefficient vehicles such as SUVs, large saloons and compact MPVs with a Band G VED rating, that is, emissions of > 225 g/km of CO2. Electric zero-emissions vehicles are already exempt from the charge.
The London low emission zone, a pollution charge scheme, was introduced between February 2008 and January 2012 covering nearly all of Greater London Payment of the LEZ charge is in addition to any congestion charge required.
In 2003 the Dartford Crossing construction debt was paid off, which should have resulted in the scrapping of the toll fee to cross. However, the government decided to continue to charge most crossing users to keep congestion levels down. As with congestion charging schemes, all proceeds must be used for transport purposes. In one year this money amounted to £60 million.
The UK's first privately operated motorway opened in 2003. The M6 Toll (originally the Birmingham Northern Relief Road) is designed to relieve the M6 through Birmingham, which is one of the most heavily used roads in the country.
In 2005, the Government published proposals for a UK wide road pricing scheme. This was designed to be revenue neutral with other motoring taxes to be reduced to compensate. The plans have been extremely controversial with 1.8 million people signing a petition against them.
In April 2012, Nottingham became the first city in the UK to introduce a workplace parking levy. The levy charges £350 on each parking space made available to employees at businesses with more than ten such parking spaces. The council have used the revenue of around £10 million a year to develop the city's tram system There has been a 9% reduction in traffic and 15% increase in public transport use since the introduction of the levy.
A 2012 study by the Institute for Fiscal Studies (IFS) funded by the RAC Foundation found that the government's drive to promote green vehicles with a lower carbon footprint could result in a significant loss of revenue from motoring taxes, estimated at GB£13 billion by 2029 at current prices, according to forecasts by the Office for Budget Responsibility. This revenue decline is partly due to improved vehicle efficiency and the growth of plug-in electric vehicles. Among the options available to the government to offset the loss, a further increase of the duty on petrol and diesel or the introduction of new taxes on alternative energy sources such as electricity for vehicles were considered. However, due to lack of popularity of the former and the risks of hindering the entire green vehicle strategy, the IFS study recommended to introduce a nationwide system of road pricing to charge drivers by each mile driven, with higher pricing in congested areas at peak times, while reducing the existing motoring taxes. Under this strategy drivers in the countryside would be likely to pay less, as rural motorists are currently overtaxed according to the study.
The 2017 Wolfson Economics Prize was based on the question "How can we pay for better, safer, more reliable roads in a way that is fair to road users and good for the economy and the environment?”. It was won by Hungarian Gergely Raccuja with a proposal based on charging by distance to replace fuel duty and vehicle excise duty.
The major change in petrol taxation came under the Conservatives in 1993 with the introduction of the Fuel Price Escalator. The escalator was designed as a means both to raise money and discourage car use on environmental grounds... While duty rose by two pence a litre as part of the 2000 Budget, Gordon Brown also scrapped the fuel price escalator, saying that future increases would be decided on the basis of the "due Budget proces
Foreign lorry drivers could pay as much as £10 a day to use UK roads, the government has announced. UK haulage firms already have to pay to make journeys in other European Union countries, including France. Transport Minister Mike Penning said charging overseas companies would create a "fairer" situation.
Most of the provisions apply on all roads throughout Great Britain, although there are some exceptions.
The Durham City congestion charge was the first congestion charge to be introduced in the UK in October 2002.Durham County Council introduced the toll for drivers using 1,000-year-old Saddler Street in the city centre which stands on the peninsula above the River Wear. This is the only public access road leading to the World Heritage Site of Durham Cathedral and Durham Castle. It was mainly introduced to reduce traffic flow using the road.Prior to the introduction of the congestion charge around 3000 vehicles used the road on a daily basis. The narrow street, built centuries ago to cater for nothing bigger than a horse and cart, is used by up to 17,000 pedestrians a day, and, according to Durham County Council a "conflict between the two was causing traffic congestion, environmental problems and road safety hazards, as well as detracting from the experience of the World Heritage Site". A year after the charge had been introduced, figures showed vehicle activity using the road fell by 85%. Until 2011, traffic was controlled by a rising bollard in the road, which was monitored by CCTV and linked to an intercom system.It was reported in late April 2007 that since October 2002, the retractable bollard has been responsible for "300 instances of car damage". According to Durham County Council, "the vast majority are very, very minor, resulting in damage such as a bent number plate."On 22 January 2011, The Northern Echo reported that Durham County Council was consulting on replacing the bollard with an automatic number plate recognition system. As part of works on Saddler Street in the summer of 2011 the charge was temporally suspended and a new ANPR system installed, the system was reinstated on 25 July but the Charge was not enforced until 29 August to allow for the registration of exempt vehicles.Edinburgh congestion charge
The Edinburgh congestion charge (also known as Edinburgh road tolls) was a proposed scheme of congestion pricing for Scotland's capital city. It planned to reduce congestion by introducing a daily charge to enter a cordon within the inner city, with the money raised directed to fund improvements in public transport. The scheme was the subject of intense public and political debate and ultimately rejected. A referendum was held and nearly three quarters of respondents rejected the proposals.Hydrocarbon Oil Duty
Hydrocarbon Oil Duty (also fuel duty and fuel tax) is a fuel tax levied on some fuels used by most road motor vehicles in the United Kingdom; with exceptions for local bus services, some farm and construction vehicles and aviation, which pay reduced or no fuel duty.
The government revenue from fuel duty was £27.1 billion for the financial year 2014-2015. This is an increase in cash terms in comparison to 2013-2014 but now only represents 1.5% of GDP. This is in contrast to the start of the 2000s when it was 2.3% of GDP. A further £3.9 billion is raised from the VAT on the duty, contributing some 3.5 per cent of total UK tax revenues. The Fuel Price Escalator, which was introduced in 1993 was abandoned after the disruptive fuel tax protests of 2000.London congestion charge
The London congestion charge is a fee charged on most motor vehicles operating within the Congestion Charge Zone (CCZ) in Central London between 07:00 and 18:00 Mondays to Fridays. It is not charged on weekends, public holidays or between Christmas Day and New Year's Day (inclusive). The charge was introduced on 17 February 2003. As of 2017, the London charge zone remains as one of the largest congestion charge zones in the world, despite the cancellation of the Western Extension which operated between February 2007 and January 2011. The charge aims to reduce high traffic flow and pollution in the central area and raise investment funds for London's transport system.
The standard charge is £11.50 for each day, for each non-exempt vehicle that travels within the zone, with a penalty of between £65 and £195 levied for non-payment. In July 2013 the Ultra Low Emission Discount (ULED) introduced more stringent emission standards that limit the free access to the congestion charge zone to all-electric cars, some plug-in hybrids, and any vehicle that emits 75g/km or less of CO2 and meets the Euro 5 standards for air quality. In April 2019, the Ultra-Low Emission Zone (ULEZ) was introduced, which applies 24/7 to vehicles which do not meet the standards: Euro 4 standards for petrol vehicles, and Euro 6 or VI for diesel and large vehicles. From 2021, the ULEZ will be extended to the North and South Circular. The ULEZ replaces the T-charge (toxicity charge) which applied to Euro 4 vehicles. From 2021, the congestion charge exemption will apply only to pure electric vehicles and from 2025 there will be no discounts for electric vehicles.Enforcement is primarily based on automatic number plate recognition (ANPR). Transport for London (TfL) is responsible for the charge which has been operated by IBM since 2009. During the first ten years since the introduction of the scheme, gross revenue reached about £2.6 billion up to the end of December 2013. From 2003 to 2013, about £1.2 billion has been invested in public transport, road and bridge improvement and walking and cycling schemes. Of these, a total of £960 million was invested on improvements to the bus network.
The congestion charging scheme resulted in a 10% reduction in traffic volumes from baseline conditions, and an overall reduction of 11% in vehicle kilometres in London between 2000 and 2012. Despite these gains, traffic speeds have also been getting progressively slower over the past decade, particularly in central London. TfL explains that the historic decline in traffic speeds is most likely due to interventions that have reduced the effective capacity of the road network to improve the urban environment, increase road safety and prioritise public transport, pedestrian and cycle traffic, as well as an increase in road works by utilities and general development activity since 2006. TfL concludes that while levels of congestion in central London are close to pre-charging levels, the effectiveness of the congestion charge in reducing traffic volumes means that conditions would be worse without the Congestion Charging scheme.London low emission zone
The London Low Emission Zone (LEZ) is a traffic pollution charge scheme with the aim of reducing the exhaust gas emissions of diesel-powered commercial vehicles in London. This scheme was changed to include the Ultra Low Emission Zone (ULEZ), introduced in April 2019. Vehicles that do not conform to various emission standards are charged; the others may enter the controlled zone free of charge. The low emission zone started operating on 4 February 2008 with phased introduction of an increasingly stricter regime until 3 January 2012. The scheme is administered by the Transport for London executive agency within the Greater London Authority.MOT test
The MOT test (Ministry of Transport, or simply MOT) is an annual test of vehicle safety, roadworthiness aspects and exhaust emissions required in the United Kingdom for most vehicles over three years old used on any way defined as a road in the Road Traffic Act 1988; it does not apply only to highways (or in Scotland a relevant road) but includes other places available for public use, which are not highways. In Northern Ireland the equivalent requirement applies after four years. The requirement does not apply to vehicles used only on various small islands with no convenient connection "to a road in any part of Great Britain"; no similar exemption is listed at the beginning of 2014 for Northern Ireland, which has a single inhabited island, Rathlin.The name derives from the Ministry of Transport, a defunct government department, which was one of several ancestors of the current Department for Transport, but is still officially used. The MOT test certificates are currently issued in Great Britain under the auspices of the Driver and Vehicle Standards Agency (DVSA) (formed as a result of the merger between the Driving Standards Agency (DSA) and the Vehicle and Operator Services Agency (VOSA)), an executive agency of the Department for Transport, and before 1 April 2014 by VOSA. Certificates in Northern Ireland are issued by the Driver and Vehicle Agency (DVA). The test and the pass certificate are often referred to simply as the "MOT".
About 20,100 local car repair garages throughout Great Britain, employing about 53,000 testers, are authorised to perform testing and to issue certificates. In principle, any individual in Great Britain can apply to run a MOT station, although in order to gain an authorisation from DVSA, both the individual wanting to run the station, as well as the premises, need to meet minimal criteria set out on the government's website within the so-called VT01 form.In Northern Ireland tests are performed exclusively at the DVA's own test centres, although currently there is an open project investigating bringing Northern Ireland into line with the rest of the United Kingdom.Outline of the United Kingdom
The following outline is provided as an overview of and topical guide to the United Kingdom of Great Britain and Northern Ireland; a sovereign state in Europe, commonly known as the United Kingdom (UK), or Britain. Lying off the north-western coast of the European mainland, it includes the island of Great Britain—a term also applied loosely to refer to the whole country—the north-eastern part of the island of Ireland and many smaller islandsRoad pricing in the United Kingdom
Road pricing in the United Kingdom used to be limited to conventional tolls in some bridges, tunnels and also for some major roads during the period of the Turnpike trusts. The term road pricing itself only came into common use however with publication of the Smeed Report in 1964 which considered how to implement congestion charging in urban areas as a transport demand management method to reduce traffic congestion.Road pricing schemes in place in the UK as of 2012 include road congestion pricing in London and Durham; the London low emission zone which is a pollution charge scheme only affecting trucks with less efficient engines entering London; and the M6 toll, the only existing toll road on a strategic road in the UK. The Dartford crossings toll was retained as a demand management tool in 2003.
The various local and any national road pricing schemes were promoted by the 1997–2010 Labour government which were then abandoned following strong public opposition. A heavy goods vehicle (HGV) road user charging scheme had been proposed by the 2010–2015 coalition government together with a suggested new ownership and financing model to fund new road construction.Salter Report
The Salter Report was named after Arthur Salter, who chaired an influential conference of road and rail experts in 1932 which reported in 1933. The report directed British government policy for transport funding for decades to follow.Single vehicle approval
The single vehicle approval is a test introduced in 1998 by the British government to determine the road worthiness of a vehicle not otherwise type approved within the UK, on a one off basis. Typically used by 'kit cars', very low volume production vehicles, and personally imported cars, allowing these cars to be used legally on the roads for a reasonable fee.Smeed Report
The Smeed Report (titled Road Pricing: The Economic and Technical Possibilities) was a study into alternative methods of charging for road use, commissioned by the UK government between 1962 and 1964 led by R. J. Smeed. The report stopped short of an unqualified recommendation for road pricing but supported congestion pricing for busy road networks.Vehicle Excise Duty
Vehicle Excise Duty (VED) (also known as "vehicle tax", "car tax" or "road tax", and formerly as a "tax disc") is an annual tax that is levied as an excise duty and which must be paid for most types of vehicles which are to be used (or parked) on public roads in the United Kingdom. Registered vehicles that are not being used or parked on public roads and which has been taxed since 31 January 1998, must be covered by a Statutory Off Road Notification (SORN) to avoid VED. In 2016, VED generated approximately £6 billion for the Exchequer.A vehicle tax was first introduced in Britain in 1888. In 1920, an excise duty was introduced that was specifically applied to motor vehicles; initially it was hypothecated (ring-fenced or earmarked) for road construction and paid directly into a special Road Fund. After 1937, this reservation of vehicle revenue for roads was ended, and instead the revenue was paid into the Consolidated Fund – the general pot of money held by government. Since then, maintenance of the UK road network has been funded out of general taxation, of which VED is a part.Vehicle first registration fee
The Vehicle first registration fee is the fee charged by the Government of the United Kingdom to register a vehicle for the first time with the DVLA.
In 2006 the applicable fee was £38.00.
In 2008 and later, the applicable fee was £55.00.