New road tax wipes thousands off cars

Alan Cole has been selling used cars in Wigan for 26 years. He has seen plenty of ups and downs in the industry over that time, from tax increases through to recessions. But he admits he has never been in a situation quite as bad as the one he’s facing.
He tries to stay positive. ‘Let’s just say we’re in a bit of a lull at the moment,’ he laughs. But his figures are no joking matter.

Having averaged 100 sales a month for a number of years across his three used car dealerships, he has recently seen that number drop by almost a third, to around 70%, and expects further falls. He is in little doubt about the reasons for this downturn.

‘Family cars and larger cars are dead in the water,’ says Alan, 51. ‘We’re struggling to shift 50% of our stock because people are just not buying bigger vehicles.

‘We’ve got people coming in wanting to trade their two-litre Mondeos for smaller, 1.5-litre cars because they’re desperate to avoid the higher taxes larger cars are incurring. These taxes have wiped millions off the value of family cars. It’s a bad situation.’

The A&P Cole dealership is not the only victim. Its troubles are being echoed around the country as the bottom falls out of the second-hand car market. Astonishingly, experts predict that this year alone, used cars will lose a quarter of their value.

The root of the problem? Not the economic downturn, but the deeply controversial Government scheme to change the way in which cars are taxed.

Put simply, after April next year, millions of owners of older cars will face a doubling of their motoring tax bill under plans to increase the Vehicle Excise Duty (VED). Some of the most popular car makes will be hardest hit. Under existing legislation, cars registered before March 1, 2001, continue to pay a flat rate of tax, which is currently set at £120 for cars up to 1549cc and £185 for more powerful models.

However, newer cars – those registered after March 2001 – are taxed according to their CO2 emissions, with models falling into one of eight banding rates, from £120 for a lowemission vehicle, such as a Ford Ka, up to £400 for gas guzzlers, such as Range Rovers.

But under the new proposals, due to be implemented next year, all vehicles – regardless of their age – will be taxed according to their emissions. And to complicate matters further, there will be 13 different bandings.

The result? When Gordon Brown announced the changes, he promised that the majority of the country’s most popular cars would have ‘the same or lower tax’ as a result of the new scheme.

In reality, however, the vast majority of popular marques face a hefty hike in tax, with more than 80 per cent of vehicles expected to be in a higher band by 2010. The tax on some family cars will increase to more than £400.

What’s more, since the changes will hit the owners of older, family-sized cars hardest, it is those who are on low incomes – such as pensioners or families on a tight budget – who will bear the brunt of the hikes.

And that is by no means the only problem. Since these older vehicles face higher VED, their resale value has plummeted, leaving many families to discover their car is worth far less than it was a few months ago.

Figures released exclusively to the Mail by Auto Trader magazine show that from January until May this year, some of the most popular car makes have seen thousands wiped off their value.

The average price of a Ford Mondeo fell by 7.5%, the Vauxhall Vectra by 8.5% and the Vauxhall Signum dropped a staggering 13.1% – all in just the past five months.

Even the perennially popular Ford Focus has seen its value slide, with a 6.9% drop since the start of the year.

Most experts are predicting a further downturn, as the credit crunch and an increase in fuel prices coincide with the proposed tax rises to create a ‘perfect storm’ for the already battered British motorist.

‘This is undoubtedly a tough time for car owners,’ says Auto Trader’s Tom White. ‘Families in particular look set to suffer most – family cars have been hit by a double whammy from fuel prices and the new tax rates. And they will find that their car could be worth far less than they had hoped.’

In fact, the annual cost of a tax disc for some cars is even expected to represent half or more of their trade value.

‘A 2001 Y-registered Fiat Marea 150 20V ELX saloon is today valued in the trade at around £650,’ says Mark Norman, of vehicle valuing experts CAP Motor Research.

‘If next year’s proposed VED rates are introduced, it will cost £415 to tax a Marea for 12 months.

‘If a consumer pays the estimated £1,225 a dealer would charge for the car and intends to keep it for three years, its taxation cost over time will be at least £1,245 – more than the driver paid for the car.’

Shocked by the extent of these charges, motoring organisations have reacted with anger and are lobbying the Chancellor, Alistair Darling, for a last-minute reprieve.

‘The tax increases are nasty for a whole number of reasons,’ says Mark Norman.

‘They’re unfair, they trap people and, despite what has been said, they are not a green tax. The people who will be hit the hardest are not just the poorest; families and the middle classes will suffer, too.

‘Families are more likely to own larger, petrol vehicles that have a higher CO2 rating, and it’s these cars which are the real losers under the new taxes.

‘The typical driver of larger family cars of medium age – especially those with automatics – will be badly affected, because these vehicles tend to be slightly less fuelefficient and therefore produce more carbon dioxide.

‘The impact on drivers’ pockets will also extend to the value of the vehicle itself. We are not talking about luxury vehicles, but ordinary family cars with a typical value of £3,000 or less.

Daily Mail