What’s the deal with the diesel tax changes in Budget 2017?

In today’s budget, Chancellor Philip Hammond announced that diesel cars would pay more tax from next April.  But which ones?  We try to clear things up a little.

The pertinent part in the budget was this:

“a Vehicle Excise Duty (VED) supplement will apply to new diesel cars first registered from 1 April 2018, so that their First-Year Rate will be calculated as if they were in the VED band above. This will not apply to next-generation clean diesels – those which are certified as meeting emissions limits in real driving conditions, known as Real Driving Emissions Step 2 (RDE2) standards”

What’s this Real Driving Emissions stuff all about?

This new testing regime measures a car’s emissions whilst it is being driving on the road, rather than the current process of testing on a rolling road.

For the test, the car is driven in a mix of conditions, including low and high altitudes, varying temperatures, additional vehicle payloads, up- and down-hill, and at a variety of speeds such as those on urban road, rural routes and motorways.

During the test, a Portable Emission Measuring System (PEMS) is attached to the vehicle and matches the results from a built-in gas analyser with data from flow meters, weather stations, GPS co-ordinates and information from the vehicle itself to create a raft of data that is later analysed to assess the vehicle’s overall performance.

The idea is that this testing regime should more accurately mirror conditions found in the real world, leading to more accurate emissions and economy figures.

And that Step 2 part?

The RDE standards are implemented in two ‘steps’ – RDE step 1 (with a NOx conformity factor of 2.1) has applied since 1 September 2017 for new car types, and will apply to all types as from September 2019.

RDE step 2 (with a NOx conformity factor of 1.0 plus an error margin of 0.5) will apply in January 2020 for new types and then from January 2021 for everything.

As compliance with these standards isn’t mandatory at the moment, that’s why the budget referred to them as ‘next-generation’.

So what does this mean for us drivers?

In short, if you buy a new diesel car from 1st April that doesn’t meet these new standards, then for the first year only the VED (or road tax) will cost the same as the band above.

So, at today’s rates a Land Rover Discovery is charged £800 for road tax in its first year.  But from 1st April, a new Discovery buyer will have to pay £1,240 as that’s the VED cost of the band above.

For all subsequent years, though, it will continue to be charged its usual rate – that’s £140, unless its list price (see below) is over £40,000, in which case it costs an additional £310 a year over the next five years.

The Chancellor’s ruling says that if you buy a new diesel car after 1st April 2018 that does comply with these standards, the amount of VED you pay won’t change.

The problem here is that no car on sale today complies with the RDE2 standards, because they weren’t due for adoption until 2020.  Even if a car does meet the required standard, there’s no certification process in place, making it impossible to declare it exempt.

Effectively, this new measure increases the sticker price of diesel cars until 2020 when they can start to comply with the new standards.

What do you mean by list price exactly?

Well, it’s the total price of the vehicle, including factory-fitted options, before any discounts.  List price includes VAT, delivery and PDI charges, and the cost of batteries for electric vehicles, even if leased.  However, it does not include the First Registration Fee (currently £55), the first year’s road tax, modifications for disabled drivers, accessories fitted by your dealer, or any additional warranty or servicing packages.

That means even if you paid £40,495 for your car, you won’t need to pay the £310 supplement if its price minus the first year’s VED and FRF bring its list price below £40,000.

Two key things to remember: firstly, discounts don’t count, so even if you haggle like a champion and only pay £38,000 for your £42,000 car, you’ll still need to pay the supplement.

And secondly, factory fitted options bump up the list price, so adding leather seats to a £39,000 car might tip you over the edge.

Sounds like this will be expensive.

For some cars, like the Discovery in the example above, yes, it does mean the first year rate will be higher.  But the most any new diesel car will have to pay is another £520, and remember it’s for the first year only and is therefore built in to the sticker price.

For the average diesel hatchback, though, the difference is negligible.  For example, a Ford Focus Titanium 2.0-litre TDCi emits 105 g/km of CO2, and currently has a first year VED rate of £145.  Come April, that will increase to £165, effectively adding just £20 to the sticker price.

Hardly catastrophic, is it?

Oh, and diesel vans (which includes pick-ups) are excluded from all of this.

Ok, great, but what does all of this mean for existing cars?

Nothing.  Your road tax bill isn’t changing.


Well, actually, the Chancellor also announced that VED rates would rise from 1st April 2018 in line with RPI, so they’ll go up a smidge just as they would have anyway.

Can I see some pretty tables?

Sure.  Knock yourself out.

VED Rates for new cars as of 1st April 2018

CO2 emissions (g/km)Standard rate*First Year RateFirst Year Rate
Diesel vehicles**
Over 255£140£2070£2070

*If the list price is greater than £40,000, they pay an additional £310/pa for five years.

**Unless they already comply with RDE2.

VED rates for cars registered on or after 1 March 2001 but before 1 April 2017

Tax year 2017 to 2018Tax year 2018 to 2019
CO2 emissions (g/km)Standard rateStandard rate
Up to 100£0£0
Over 255£535£555

VED rates for cars and vans registered before 1 March 2001

Engine sizeTax year 2017 to 2018Tax year 2018 to 2019
1549cc and below£150£155
Above 1549cc£245£255