New automobile consumers stung an additional £417 on common for street tax subsequent 12 months when Labour’s car excise obligation hikes arrive

Buyers of new petrol and diesel cars are set to feel the brunt of the Chancellor’s widespread tax raid from next year.

First-year Vehicle Excise Duty (VED) rates for all new petrol, diesel and conventional self-charging hybrid models will double from April as part of a ‘stealth tax’ on fossil fuelled motors announced in the Budget.

Rachel Reeves’ hikes to the ‘showroom tax’ paid on new cars intends to make petrol and diesel vehicles more expensive and therefore less appealing, while keeping road tax cheaper for electric vehicles is designed to trigger demand amid the recent sales slump as Labour scrambles to hit its Net Zero targets.

The result of this increase in taxation on new cars will see the average buyer – from 1 April 2025 – fork out an extra £417, a new report estimates. 

As such, around £326million in additional income will arise for Treasury coffers next year, according to comparison website GoCompare.

It will be particularly bad news for motorists intending to purchase one of the few new diesel cars on sale.

While those buying new petrol models will see an estimated VED increase of £503, drivers wanting diesels can expect the sting to be twice as painful as a result of higher costs attributed to their dirtier reputation.

But despite the rules seemingly benefitting EVs as part of the Government’s drive towards the ban on sales of petrol and diesel models in 2030, buyers of new battery cars will also be stung by a different VED charge that will be even costlier…

GoCompare car insurance crunched Department for Transport figures on the number of new private vehicles registered in the first half of the 2024 tax year. 

It applied the existing and upcoming first-year rates for VED to these vehicles to estimate how much more new car buyers could pay next year if buying habits remain the same.

Based on new car buyers paying an extra £417 on average for showroom tax, the increased fees mean drivers will spend an additional £162.9million if the same number of vehicles is bought in the first six months of the new tax year.

If that volume of vehicles is repeated in the second half of the 2024-25 financial year, the Government is set to rake in an increase of £325.8million. 

Biggest tax hikes for new diesels – though only if you can find one in showrooms

Diesel drivers are set to be hit hardest by the rise, the study says. 

VED rules introduced back in 2017 dictate that diesels pay one tax band higher than petrols as the Government performed a monumental U-turn having incentivised the sale of diesel cars using its CO2-emission-based system.

Because diesel buyers are charged a band higher, those who purchase a 25-plate car from 1 April will face an eye-watering average increase in first-year VED of £1,114 per vehicle – more than double the rise facing petrol drivers.

In total, diesel buyers will pay an additional £26.1million towards the tax if the same number is bought in the first six months of the financial year, the comparison site claims.

However, that’s only if motorists can get their hands on a diesel.

The choice of new models with a diesel engine has shrunk by 68 per cent in less than a decade, analysis by second-hand marketplace Car Gurus found recently.

In 2024, there are 65 diesel variants available from the 30 most popular mainstream motor manufacturers, its analysis found.

That’s scarce availability compared to a decade ago; in 2015, there were 202 different diesel models on sale in UK showrooms.

Petrol car buyers will spend an extra £89.4million in VED in the first half of the 2024-25 financial year, equating to an average of £503 per car more.

The additional taxation will be much lower for those who buy greener vehicles.

Hybrid drivers will pay between £136 and £328 extra in road tax depending on the type they buy.

And the relative increase for battery electric cars will be nominal, as suggested when Reeves declared she would ‘strengthen incentives to purchase zero emission and electric cars, by widening the differentials between zero emission, hybrid and internal combustion engine cars’ during the Budget statement.

As such, those who choose a battery electric vehicle (EV) will only need to spend another £10.

Tom Banks, car insurance expert at Go.Compare, said: ‘The increased VED rates mean most new car buyers will be paying a lot more than they were expecting in 2025, but there are ways you can minimise the impact this will have on your finances. 

‘For instance, consider purchasing a low-emissions car that will place your vehicle in the cheaper tax bands.

‘If you can’t purchase a suitable hybrid or EV, consider opting for a nearly new vehicle instead. This gives you that new car feeling for a fraction of the price, and will allow you to dodge the increased tax.

‘Otherwise, see if there are any other ways you can reduce your motoring spending to make up for the increased tax costs. 

‘For example, comparing car insurance policies might allow you to find a provider that offers the same level of cover for a lower price, and driving in a way that minimises your fuel usage could help to reduce costs further.’

Steve Gooding, director of the RAC Foundation, described the Chancellor’s decision to double VED rates for all petrol and diesel cars as ‘less of a nudge and more of a shove to change buyer behaviour in the showroom’ to favour EVs.

But EV buyers will have their pockets stung by VED too

While April 2025 VED rules around first-year road tax rates are primarily designed to incentivise drivers to buy electric cars, they too are on course to be pummelled by an existing supplementary tax that will impact around 70 per cent of new EVs.

A luxury car tax currently exists for any brand new model across all fuel types with a list price of £40,000 or more.

This premium tax is applied from the vehicle’s second year and currently adds £410 to the VED bill for five years in total. This is likely to rise with RPI from April, though.

EVs are also due to be charged a standard rate of VED (payable every year from year two) for the first time from April under plans first announced by the former Tory regime.

The Government has confirmed a standard VED rate for EVs of £195. 

Industry groups are lobbying Rachel Reeves to scrap the luxury car tax for EVs after a market report revealed that 70 per cent of battery vehicles purchased by Britons in the previous 12 months cost in excess of £40k.

This means from year two to six, the road tax bill will be £605 annually – or £3,025 over a half-decade period of ownership. 

A study by car magazine Auto Express earlier this year found that seven in ten new EVs purchased in Britain are over the £40,000 threshold, meaning the premium tax will sting most buyers.

In Ms Reeves’s Budget document, the Chancellor acknowledges that the majority of EVs will be stung by the premium tax – though promised to consider raising the threshold from £40k.

‘The government recognises the disproportionate impact of the current VED Expensive Car Supplement threshold for those purchasing zero emission cars and will consider raising the threshold for zero emission cars only at a future fiscal event, to make it easier to buy electric cars,’ the official document said.

However, guidance updated on the Gov.uk website last week (on 28 November) regarding Vehicle Excise Duty on EVs suggests a review either hasn’t taken place or the Government intends to retain the £40,000 expensive car supplement. 

It says: ‘New electric and zero emission vehicles registered on or after 1 April 2025 with the list price exceeding £40,000 will attract the standard rate, plus the expensive car supplement for the first 5 years from the start of the second licence.’

Ginny Buckley, founder of electrifying.com and an avid spokesperson on EVs, told The Times that electric car buyers will go from paying no road tax to ‘potentially having to pay thousands of pounds over the first six years of ownership’. 

She added: ‘The issue here is that £40,000 is not a level that indicates a ‘luxury’ car when it comes to EVs, as their list prices are generally higher than those of their petrol or diesel counterparts.

‘This threshold would include many modest models, such as a mid-range Kia Niro EV or a Volkswagen ID.3. 

‘It will affect family drivers who need a larger car, or businesses that require a bigger battery with more range, potentially discouraging many from making the switch to electric.’