Monday, March 19, 2007

Why Only an Increase in VED is not Enough

Today the Alliance Against Urban 4x4s is calling on the Chancellor to show real leadership and moral responsibility.

If the Chancellor has the moral character to show real leadership in tackling climate change, then he needs to begin to use the VED system significantly so that it does more than raise taxes for the treasury. VED is the logical lever available to the government to put pressure on private car choices in the UK. Creating a higher rate for the top band G would reduce the number of those vehicles being purchased. Creating a new fee-bate for energy efficient cars below an agreed CO2 emissions level would stimulate the market for lower carbon vehicles.

In 2001, as a response to the Kyoto Protocol, Gordon Brown overhauled the VED system from engine size to a differential system based on carbon dioxide emissions. The new system of VED was established as an instrument to alter consumer behaviour in order to decrease CO2 emissions from the transport sector, which accounts for over 20% of the UK total CO2 emissions.

Unfortunately, 6 years later the VED system as it currently stands has had little or no such affect. In fact, since 2004 consumer and manufacturer behaviour has driven the sales increasingly for larger, thirstier and more powerful vehicles. According to VW CEO Martin Winterkorn, consumers ‘want cars with more powerful engines, air-conditioning and all kinds of electronic gadgets to enhance comfort and safety. They are buying high-roof cars with higher air resistance values and SUVs [4x4s]. These segments have experienced the biggest boom in recent years.” Significantly, due to their popularity, almost every manufacturer now provides at least one 4x4 model. Four-wheel-drive vehicles are one of the fastest growing sectors of the car market. (1) Sales in the UK have doubled in the past decade and, in 2004 alone, the rise was 13%. (2)

In 2005, the European Federation for Transport and Environment stated that the weak point of the UK VED system is that the differences in VED levels are too small to have a significant impact on consumer choice. (3) The £20 difference between the existing bands F and G provides no financial incentive for consumers to choose a less polluting vehicle.

The report ‘Assessing the Impact of Graduated Vehicle Excise Duty – Quantitative Research’, prepared by MORI for the Department for Transport in June 2003, concluded that the current graduated scheme of vehicle tax does not offer a large enough incentive to encourage behavioural change. (4) Surveying private car buyers, the MORI report found that a differential between bands of £150 would be needed to persuade even 55% of buyers to choose a lower emission car. A difference of £300 was needed to persuade 72% of drivers to do the same. Despite commissioning this research, the Chancellor’s government has failed to implement evidence-based differentials in the VED scheme in every budget since 2003.

Meanwhile, the auto manufacturers have a huge over capacity of efficient vehicles, because there is no consumer demand. Since 1995 they have called on the European governments to provide clear and consistent leadership in order to drive demand. According to ACEA, “It is of crucial importance that future CO2-related policy focuses on influencing consumer demand, through CO2-based taxation of cars and alternative fuels, to provide a consumer base for the many existing CO2-efficient solutions developed by the industry.” (5) Again the market instrument at Gordon Brown's disposal is VED. He can't wait for some future agreement on the EU level.

The Chancellor was reported to say last week that consumers need incentives not punishments. We feel that consumers need real leadership. The VED system as it currently stands doesn’t include any significant incentive to attract would be buyers to a fuel-efficient vehicle. We are calling for a fee-bate up to £300 for purchases of vehicles under 120 gmCO2 / km.

At the same time there needs to be a substantial economic driver against the current lifestyle trend to buy bigger and heavier vehicles. We are calling for a significant increase to the top Band G (currently only £210). This needs to be over £1300. This is backed up by a survey by the RAC Foundation in 2005. They reported that, although car buyers say cost is paramount in their decision-making, in reality, they are prepared to endure large increases in costs before changing their behaviour. On average, the report notes that annual costs have to increase by at least £1,100 before private car drivers will consider switching to an alternative fuel or smaller engine (both of which are preferred to a smaller car). (6)

While consumers continue to demand heavier cars and more powerful engines, the Chancellor continues to relegate any leadership decisions to Europe, and continually does nothing to take real responsibility for changing the UK market, regardless of the impact on our fragile ecosystem.

Car efficiency needs to be financially rewarded instead of being dismissed. Our VED system needs a radical overhaul in order to shift consumer demand towards energy efficient cars and away from damaging gas-guzzlers.

It is vital that the Treasury send a clear message this week to the marketplace to provide marked encouragement to purchase lighter and more fuel efficient cars, and provide substantial dis-incentives to change the current purchasing trend for heavier and more powerful vehicles.


1.) "People Act as though the Hybrid Could Solve all our Problems". Spiegel Online, March 06, 2007

2.) “Little and Large: a Lethal Combination”. The Times, 21 March 2005

3.) “Making Car Taxes Work for the Environment”. European Federation for Transport and Environment (T&E), December 2005

4.) “Assessing the Impact of Graduated Vehicle Excise Duty – Quantitative Research”. MORI for the Department for Transport, June 2003

5.) “Car Firms made Progress in CO2 Fight”. The European Automobile Manufacturers Association, extracted from the Economist Newspaper, 2007

6.) RAC Foundation quoted in Lane, “Consumer Attitudes to Low Carbon and Fuel-Efficient Passenger Cars”. Low Carbon Vehicle Partnership, March 2005