Pre-Budget Report 2008: What it means for you

Alistair Darling announced three main changes in the Pre-Budget Report that affect car owners.

Road Tax

Owners of older cars will avoid punitive increases in road tax next year after the Chancellor of the Exchequer revised vehicle excise duty in his pre-Budget report.

The cost of tax will increase by a maximum of £5, while some owners will see no change at all.

People with cars registered between March 1, 2001 and March 23, 2006 would have been liable for significant increases next year if their vehicles emitted more than 225g/km of carbon dioxide.

The change threatened to make many older family cars worthless as annual road tax rates were to be set at more than £400.

However, Alistair Darling announced a toned down version of the proposed new road tax bands in the pre-Budget report, where owners of high-emission older cars would see a £60 increase in Road Tax staggered over two years.

It means owners of cars with CO2 emissions of 226g/km or higher that paid £210 this year, would see their road tax bill rise to £215 for 2009/10 and then to £245 for 2010/11.

Cars with CO2 emissions of 100g/km or lower will remain Road Tax-free, while those cars between 101g/km and 120g/km will be liable for modest rates of road tax.

Exemption for older cars (those registered between March 1 2001 and March 23 2006) will run until 2011, but there is a question mark over what happens after this date. Some owners (or potential owners) could find themselves in the same position as they are now - having to pay a substantial increase in Road Tax - in 24 months time.

As a result of the new charges, no owners will save money. Previously everyone with a CO2 figure of less than 140 g/km CO2 would have paid less in 2009.

Road tax from April 2009-2010

Fuel Duty 

Rises by 2p per litre from 1 December to offset lower VAT rates.

Owners of diesel cars may see a slight benefit from this. The rate at which the VAT saving is more than the 2p per litre fuel duty increase is 108.1p per litre. Any forecourt charging more from than this for fuel should be in a position to pass on a slight saving.

VAT

List prices of new cars will fall from December 1 as the Government reduces VAT from 17.5% to 15%.

The reduction will be temporary, lasting until the end of 2009, but it means official on-the-road prices should fall across the board.

However, there will be a limited impact on the actual transaction prices for new cars. They will show little change, as significant discounts off list price have been available on many models for several months.

If passed on in full, a VAT saving would mean:

Honda, BMW, Renault, Hyundai, Saab, Skoda and Peugeot have said they will pass the saving on, in full, from Monday.