Income from motor tax is kept under regular review with rates and bands adjusted in a budgetary context as is deemed necessary. In recognition of the lower average motor tax paid in respect of vehicles taxed on the basis of CO2 emissions compared to vehicles taxed on the basis of engine capacity, whilst at the same time maintaining the incentive for purchasers of new vehicles to buy low emission vehicles, differential increases were applied in recent budgets. The level of increase applied to vehicles taxed on engine capacity, the basis of taxation for pre-2008 cars, was less than that applied to newer vehicles taxed on the basis of CO2 emissions. The average increase in motor tax for passenger vehicles taxed on engine capacity was 7.5% in Budgets 2012 and 2013, compared with increases in 2012 ranging from 7.5% to 54%, and in 2013 ranging from 4% to 25%, for vehicles charged on the basis of CO2 emissions. In Budget 2013, 4 new bands below 140g CO2/km, as well as a zero band for electric vehicles, were introduced to facilitate the continued incentivising of low emission vehicles and the maintenance of the tax base.
The vehicle fleet is progressively replaced by cars taxed on the basis of CO2 rather than engine capacity. At 31 May 2014, 31.4 % of the passenger vehicle fleet was taxed on the basis of CO2 emissions and the proportion of the fleet taxed on this basis is increasing by approximately 5 percentage points per year. The implications of this and the range of other factors impacting on overall motor tax revenues is kept under ongoing review.
