An increase in VAT to 20 per cent is the headline figure from the 2010 Emergency Budget, delivered by George Osborne for the coalition government.
Rises in VAT will means hefty increases in the cost of buying, running and maintaining a car, as buying a car, purchasing fuel and servicing a car all attracts Value Added Tax.
There were no new rises in fuel duty, although planned rises are set to go ahead and there was no mention of a stabiliser to protect motorists from rises in bulk petrol.
VAT up to 20 per cent
The planned rise in VAT means that VAT will have increased from 15 per cent to 17.5 per cent, and subsequently to 20 per cent within just over one year.
VAT will go up to 20 per cent from 4 January 2011, having been temporarily cut to 15 per cent by the Labour government during 2009.
The car industry is likely to feel the pinch, with the VAT increase meaning £2,000 tax on the basic price of a £10,000 car – £500 more than the amount it would have been in December 2009.
However, the VAT rise only comes into effect in January 2011, which could incentivise purchases up to that time.
Servicing costs also attract VAT, so anyone buying or running a car is likely to see costs rising as a result of the budget.
And VAT is added to the cost of petrol after fuel duty is added.
Fuel prices to rise
VAT will also be applied to petrol prices, which means VAT will be applied to the cost of petrol, and the fuel duty on the price of petrol. This could translate to between 3p-per-litre to 5p-per-litre at the pumps.
Although there was no mention of new fuel duty rises, it seems likely that the fuel duty rises planned by Alistair Darling for October 2010 and January 2011 will go ahead.
The government announced that it would investigate the 'feasibility' of a fuel price stabiliser, designed to insulate motorists from sudden and sharp rises in oil prices, despite the stabiliser being part of the Conservative manifesto.
A programme to help rural areas cope with rising fuel costs will also be considered.
Insurance premiums up
Insurance Premium Tax will increase to 6 per cent, meaning higher insurance bills for motorists. There is speculation that this could lead to an increase in the number of people driving without insurance.
Road tax
There was no mention of VED rates in the Emergency Budget, though more may be revealed in the fine print.
Electric cars and alt-fuels
There were no details delivered on the electric car grants, planned to incentivise purchases of electric cars from early 2011. The grants were thought to be threatened by the new coalition government.
Company car tax
Planned changes to company car tax under Labour will go ahead.
Transport
Transport funding is likely to be cut by more than 25 per cent by 2014, including an immediate cut of £17.2m from the specific road safety capital grant.
Other Budget news
Corporation tax will be cut from 28 per cent to 24 per cent, while tax for small businesses will be cut to 20 per cent.
That could be good news for manufacturers and dealers, but the positive effects may be mitigated by increases in VAT that hit car purchases.
• Image by altogetherfool via
Creative Commons