H.M. TREASURY

EXPLANATORY NOTE

CLAUSE 20: THRESHOLD FOR GENERAL REDUCED RATE

SUMMARY

This clause provides for the current reduced rate of VED for smaller-engined cars to be extended to all cars with engines up to 1,200cc from March 1, 2001, and for rebates of up to £55 to be paid to newly-qualifying owners who take out licences at the standard rate between March 1, 2000 and February 28, 2001.

DETAILS OF THE CLAUSE

2. Subsection (1) substitutes an engine-size of 1,200 cubic centimetres for the existing engine-size of 1,100 cubic centimetres in specifying the engine-size of vehicles which will qualify for the reduced rate of VED for private and light goods vehicles; and provides for this extension of the engine-size threshold to take effect from March 1, 2001.

Subsections (2), (3) and (4) provide for the payment of refunds in respect of licences taken out at the standard VED rate for private and light goods vehicles with an engine-size between 1,100cc and 1,200cc, issued between March 1, 2000 and February 28, 2001, and which have not been surrendered during that period.

4. Subsections (5), (6) and (7) specify the individuals who will be entitled to these refunds, and the procedures by which it will be certified that they are so entitled, and by which they will be invited to apply for these refunds.

Subsection (8) provides that, from March 1, 2001, the refunds payable on surrender of licenses affected by the provisions in Subsections 2, 3 and 4 will be calculated by reference to the reduced VED rate rather than the standard rate at which they were issued.

6. Subsection (9) makes it an offence to make a false application for a refund under the provisions in Subsections 5, 6 and 7.

BACKGROUND

A reduced VED rate for cars was announced in the last Budget and introduced on 1st June 1999 for all cars with engines up to 1,100cc. This gave a £55 VED cut to drivers of around 1.8 million cars. Engine size is the best available proxy for measuring the fuel-efficiency of existing cars.

From 1st March 2001, the reduced rate will be extended to apply to all existing cars with engines up to 1,200cc - giving a £55 cut to an additional 2.2 million smaller cars, including around 700,000 models of the Ford Fiesta, 200,000 Vauxhall Corsas, 200,000 Vauxhall Novas and 200,000 Renault Clios. This will mean that a total of around 4 million cars will benefit from the reduced rate.

The Driver and Vehicle Licensing Agency (DVLA) will be putting into place a special, customer-friendly rebate scheme. From March 2001, all owners of newly-qualifying vehicles who have licensed their car at the standard £155 rate during 2000-01 will receive a £55 cheque in the post as a reward for driving a smaller, cleaner car.

This measure will cut the tax cost of car ownership by £120 million per annum, on top of the £85 million per annum cost of the 1,100cc reduced rate announced in the last Budget.