Budget 2010: VAT, insurance and fuel duty to hurt motorists

George Osborne revealed that VAT is to rise to 20 per cent next year as part of his emergency Budget report.

The announcement came as the Chancellor revealed his measures designed to slash the UK’s record Budget deficit. Other measures expected to hit motorists hard include a hike in insurance premium tax from January 4, 2011 which will affect the cost of motor insurance and vehicle warranty cover. The rise will take the tax from the current 5 per cent to six per cent. No announcements were made about road tax (VED) rates. 

Commenting, Sue Robinson from the Retail Motor Industry Federation (RMI) said: "The increase in this tax is disappointing. With one in ten of the cars on the road uninsured, this additional rise will inevitably lead to an increase in the number of drivers flouting the law as it will increase the cost of insuring a vehicle."

The Government also confirmed that it intends to go ahead with planned one penny increases in fuel duty, currently set for October and January 2011. However, the Chancellor has instructed the Office for Budget Responsibility to review the possibility of introducing a ‘fair fuel stabiliser’ and may consider introducing a reduced fuel duty rate for rural areas.

The Government expects to wipe out the deficit over the next five year, by following the 80:20 rule of thumb – roughly 80 per cent through lower spending and 20 per cent through higher taxes.

Sue Robinson said: "The RMI are pleased that the rise in VAT is to be deferred until 4 January 2011, this will produce a short term stimulus in sales, with buyers bringing forward purchases, which presents an opportunity for consumers and dealers to beat the rise by purchasing or selling over the coming months.

“However, today’s announcement will, in the longer term, damage the recovery and dent consumer confidence. The retail motor industry is only just emerging from one of the most difficult periods in recent times and to increase the VAT rate does nothing to help either the consumer or the retail motor sector. Car buying patterns reflect the state of the economy and business will be forced to pass on the VAT increase to the consumer.

Today’s increase will raise the cost of the average family car by approx £375 (£15k car)"

Author: Faye Sunderland, June 22nd, 2010
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