Summer Budget 2015: 'Road tax' rates to change for new car owners

In his Summer Budget 2015 speech, Chancellor George Osborne announced a number of key changes affecting motorists. In a nutshell, here are his planned reforms:

• New Vehicle Excise Duty (VED) or road tax rates to be introduced for new cars registered in the UK from 1 April 2017. There's no change to rates for existing cars.

• A consultation will begin on extending the deadline for new cars and motorbikes in England, Scotland and Wales to have their first MOT after four years, up from the current three year time-frame.

• Establish a new Roads Fund so money raised from VED in England will pay for investment in England's road network.

• Fuel duty to remain frozen in the UK

For more on each of these points, see below. Also see our Motoring MoneySaving guide for 50+ quick tips to cut driving costs.

New 'road tax' rates from 1 April 2017

Osborne said it's not "sustainable and it isn't fair" that by 2017, over three quarters of new car owners will pay no VED at all in their first year of ownership because so many cars now fall into the low carbon emission band.

Osborne added: "If you can afford a brand new car, including some of the most expensive models available, you can pay no VED.If you can only afford an older, second-hand car, you have to pay more tax."

So in a bid to make the system "fairer" to motorists and to "reflect improvements in new car CO2 emissions" he announced that from 2017, there will be a flat rate of £140 VED for most new car owners payable after the first year of ownership.

In the first year of ownership the tax will remain linked to the CO2 emissions that the car produces. Brand new cars priced at £40,000 or more registered after 1 April 2017 will also have to pay an additional £310/year on top of the usual standard rate of £140 for five years.

Owners of electric cars won't pay any road tax at all and drivers of existing cars won't be affected – they'll continue to pay the current rates of 'road tax':

• For cars registered before 1 March 2001 the rate of vehicle tax depends on its engine size. 1549cc and under costs £145 (based on 12 month upfront payment). Over 1549cc costs £230 per year (based on 12 month upfront payment).

• The rate for cars registered on or after 1 March 2001 depends on CO2 emissions and fuel type. This costs between £0 and £505/year (based on 12 month upfront payment).

• For cars registered on or after 1 April 2010 there's one rate for the first year, and for the following years they'll pay the rate set out for cars registered on or after 1 March 2001.

See the table below for a comparison of how much VED you'll pay.

How much will I pay for 'road tax'?

Summer Budget 2015: Fuel duty and road tax

Extending the deadline for a car/motorbikes first MOT

Separately Osborne revealed that a consultation will be launched on whether to extend the deadline for new cars and motorbikes to have their MOT tested, from three years to four years in England, Scotland and Wales.

Currently, you need an MOT – a safety and legal must – when the car's three years old (four years in Northern Ireland), then annually after that.

Further details on the consultation are "to be announced in due course". If a decision is reached to move it to four years, then there will be no change in Northern Ireland. See MoneySavingExpert.com's Cheap MOT tricks to beat repair costs.

The announcement also does not apply to lorries, buses or trailers as these must be tested after the first year and then annually as per EU requirements.

New 'Roads Fund' for England

In addition Osborne has also announced that from 2020, every single penny raised from the tax people pay on their cars in England will go towards a fund to pay for "sustained investment our roads so badly need".

So money raised in England will go to fix the roads in England. Elsewhere in the UK, Osborne says the Government will need to "engage with the Devolved Administrations on how the money is allocated there".

Currently, Northern Ireland, Scotland and Wales have the responsibility of funding road works in their own country and they have to work out how to spend money granted from the central UK government.

Fuel duty frozen

In March's Budget, Osborne announced that the planned September fuel duty rise across the UK would be cancelled. He re-affirmed this in his Summer Budget speech.

This means that fuel duty has been frozen at 57.95p/litre for both petrol and diesel since March 2011. Of course, this doesn't mean prices have come down or have frozen too, it just means the tax element hasn't risen.

See MoneySavingExpert.com's Cheap Petrol and Diesel guide to cut prices and improve fuel efficiency.

Off the back of the Chancellor's speech, the major supermarkets were quick to cut the price of diesel, but not unleaded, in time for the weekend:

• Asda: 2p/litre off diesel bringing it to the same price as unleaded: 114.7p/litre across all its 272 filling stations. Asda sets a national price cap so drivers will pay no more than 114.7p/litre.

• Morrisons: Cut the price of diesel by up to 2p/litre across its 336 petrol stations.

• Sainsbury's: Cut the price of diesel by 2p/litre across its 300 forecourts.

• Tesco: Cut the price of diesel by 2p/litre across its 500 forecourts.

Asda is the only supermarket to set a national price cap. Morrisons, Sainsbury's and Tesco do not set a national price cap so pump prices vary regionally.

According to the latest figures from Petrolprices.com, the average UK price for a litre of diesel was 119.82p/litre on Wednesday, while the cost of unleaded petrol stood at 116.49p/litre.