Road tax reforms to hit nine million

Ministers have admitted that nearly half of all drivers will have to pay more in road tax under plans to punish high-polluting cars.

Treasury minister Angela Eagle revealed that 8.7 million motorists would see their bills rise by as much as £245 by 2010.

MPs approved the rise in vehicle excise duty for gas guzzling vehicles earlier this month, but the news, which came in response to a parliamentary question on Wednesday, is expected to attract more criticism.

Chancellor Alistair Darling was forced to offer concessions to Labour MPs who were concerned over how the move would affect poorer drivers.

The figures showed that vehicles in the six most-polluting bands will see their taxes rise as a result of the reforms.

Only a third of drivers will be better off in real terms, with 55 per cent "no worse off". Just over 44 per cent will pay more.

The Conservatives accused Gordon Brown of misleading Parliament and the public.

Shadow chancellor George Osborne said: "Gordon Brown appears to have misled Parliament. He said that the majority of drivers would benefit from the changes to VED."

"Now even the Treasury have admitted that just a third of drivers will be better off in 2009, dropping to less than 20 per cent in 2010.

"This destroys the government's defence that this is a green tax and in general gives green taxes a bad name.

"We need the prime minister to tell us whether he knew that he was giving Parliament the wrong information and was treating the public like fools, or was it the case that he didn't know the truth about the impact of his own Budget on families?"

The AA said the figures "confirms our worst fears" but Friends of the Earth said ministers "must stand firm" on their plans.

And giving evidence to the Commons environmental audit committee, Eagle refused to comment on a suggestion from justice secretary Jack Straw that the government could climb down over the road reforms.

"We have set out our stall on the direction of policy," she said.

Row

The row continued at Treasury questions in the Commons on Thursday, with Conservative MP Andrew Mackay saying the figures showed it was "patently untrue" for Gordon Brown to have said that a majority of drivers would benefit from the changes.

Darling replied that: "What the prime minister said on many occasions was that the majority of motorists would either gain or be no worse off."

However Osborne quoted Brown as telling David Cameron "last month that 'if he looks at the detail of the VED proposal he will see that a majority of drivers will benefit from it'.

"That is now clearly not the case from the Treasury figures published yesterday. Will the prime minister be apologising to this House?" he asked.

Darling responded with his own quote. "On the 14th of May he said that 'the majority of motorists benefit or pay no more in Vehicle Excise Duty as a result'," he noted. "That is what the prime minister said."

But Osborne hit back that: "On the fourth of June the prime minister said that a majority of drivers will benefit from the VED changes."

"Isn't the substance of the issue this?" he added. "Nine million families face higher car taxes at a time that few can afford it, poorer drivers will be penalised because the tax is retrospective and hits second hand cars, any pretence that it helps the environment has been demolished by Greenpeace who says it 'gives green taxes a bad name'."

Darling said that: "The crux of the issue is this: How do we encourage people to use less energy?

"How do we encourage motor manufacturers to engineer and to produce more efficient cars?"

Fuel duty

In the Commons the Conservatives also clashed with ministers on fuel duty.

Eagle told MPs that: "The government understands the difficulties that are currently being faced by businesses and families as a result of record oil prices.

"It is for this reason that the chancellor deferred the forecast two pence per litre fuel duty increase which was planned for this year".

But Tory MP Andrew Selous hit back that: "The chancellor may understand the difficulty of motorists but he is still about to clobber nine million motorists with extra road duty and the government is still taxing our fuel more expensively than anywhere else in Europe."

"With that in mind, what relief can the government offer motorists who have no alternative but to use their cars?" he asked.

Eagle replied that petrol prices would provide another reason for drivers to switch to cleaner vehicles.

"As oil duties rise, more fuel efficient cars are actually cheaper to run as one gets more miles to the gallon," she claimed.

"With oil prices where they are at the moment, that will concentrate motorists' minds."

Shadow chief secretary to the Treasury Philip Hammond argued that the government should adopt a Conservative plan for a fuel duty "stabiliser" that would automatically adjust taxes as oil prices rise and fall.

"The government's response has been to claim that there is no windfall to the Treasury [from rising oil prices]," he said.

"So will she now acknowledge that the only independent body that has done any proper research on this, the National Institute of Economic and Social Research, has concluded that there is a net benefit to the Treasury of £1.4bn after taking into account all economic effects for every increase in the price of oil?"

"Why won't her government agree to this plan to share that windfall, helping consumers and stabilising the public finances at the same time?"

However Eagle denied that the Treasury benefits overall as corporation tax proceeds decline due to the effect oil prices on company profits.

"It would actually destabilise the public finances because it is seeking to distribute an oil windfall that doesn't exist," she said of the plan.