Radical reform of Vehicle Excise Duty from next year has been delayed by the Chancellor because of the economic crisis.

Instead of VED increases next April of up to £230, the rises will be capped at £5 for the most polluting cars. And VED rises from April 1, 2010 will be capped at £30, although the Government will press ahead with the introduction of a new ‘first year’ rate.

In announcing the U-turn, the Chancellor said: “We rightly have a system of car taxation which takes into account the environmental impact from different types of car.

As planned, differential first year rates which people pay when they buy a new car will be introduced in April 2010. They provide powerful incentives to purchase less polluting cars.

“I intend to go ahead with the introduction of new bands, reflecting fuel efficiency. But it would be wrong to do this in a way that places undue burdens on motorists at this time. So I have decided to help people by phasing in new rates and lower increases.

“First, in 2009, duty rates for all cars will only increase by a maximum of £5 as has been normal practice. Second, from 2010, we will bring in differential increases in duty.

In the original proposal, some cars would have seen increases of up to £90. Instead, I now propose that the more polluting cars will see duty increased, but up to maximum of £30. And less polluting cars will see no increase or a cut of up £30.

Cars that emit over 225 g/km, but were registered between March 1, 2001 and March 23, 2006, will be moved into new band K in 2009 and stay there in 2010. This will mean that they maintain their exemption from the top rate of VED.

Cars registered before 2001, which account for around a third of the fleet, are not subject to the reforms, because comprehensive data on their carbon dioxide emissions is not available. Instead, pre-2001 cars are subject to a separate VED regime, based on engine size.

2009/10 Vehicle Excise Duty (VED) rates

VED BandCO2 (g/km)
Standard rate
AUp to 100£0
B101-110£35
C111-120£35
D121-130£120
E131-140£120
F141-150£125
G151-160£150
H161-170£175
I171-180£175
J181-200£215
K201-225£215
L226-255£405
MOver 255£405

2010/11 Vehicle Excise Duty (VED) rates

VED BandCO2 (g/km)
First year
Standard rate
AUp to 100£0£0
B101-110£0£20
C111-120£0£30
D121-130£0£90
E131-140£110£110
F141-150£125£125
G151-160£155£155
H161-170£250£180
I171-180£300£200
J181-200£425£235
K*201-225£550£245
L226-255£750£425
MOver 255£950£435

* Includes cars emitting over 225 g/km registered between March 1, 2001 and March 23, 2006.

Cars registered before March 2001, are charged according to engine size: £125 up to 1550cc and £190 for larger engine sizes in 2009/10, rising to £205 in 2010/11.