UK road tax scheme appears to lack any logic

So much has been written already regarding London Mayor Ken Livingstone's new road tax that we never really spent too much time analyzing the plan itself. Fortunately, though, Clean Green Cars did it for us . EDIT: The Vehicle Excise Duty is different than the new congestion charge that Ken Livingstone is implementing. Sorry for the confusion, and thanks for the correction. As it stands, the road tax divides vehicles up into twelve "bands", separated by how much CO₂ they emit. All of that seems to make some sense at first, until the numbers are crunched to reveal that the bands are divided up rather oddly. For instance, the eleventh band, labeled "L," carries an increase of £120 over band "K", while the next step up the ladder carries only an increase of £25. Why aren't vehicles progressively punished based on their emissions?
If this data seems difficult to understand, take a look at the press release and accompanying press release pasted after the break. It may serve to clear things up a bit. Any thoughts regarding the makeup of these taxes are welcome in the comments.

UPDATE: Headline also changed.

Press Release:

Clean Green Cars' Data Shows That New Road Tax Bands Lack Logic

www.cleangreencars.co.uk

The government's plan to introduce 12 road tax (VED) bands instead of six is sensible, but the price of taxing a car in each band appears to have been generated at random.

The changes in road tax (technically known as Vehicle Excise Duty or VED) are intended to persuade consumers to buy less polluting cars, by making road tax progressively more expensive for higher polluting models. However, looking at the price jumps from one band to the next (the fourth column in the table) shows there is absolutely no consistent pattern to the increases – especially when EU emissions targets are taken into account.

VED	CO₂	VED annual	Increase from	market share
Band	g/km	cost £	previous band £	2007%

Band A	up to 100	0	0	0.01%
Band B	101 - 110	20	20	2.33%
Band C	111 - 120	35	15	3.09%
Band D	121 - 130	95	60	4.97%
Band E	131 - 140	115	20	14.34%
Band F	141 - 150	125	10	14.96%
Band G	151 - 160	155	30	17.20%
Band H	161 - 170	180	25	10.20%
Band I	171 - 180	210	30	10.21%
Band J	181 - 200	270	60	10.75%
Band K	201 - 225	310	40	5.64%
Band L	226 - 255	430	120	2.88%
Band M	256 plus	455	25	3.42%

Proportionately, the biggest tax increase is the £60 from Band C to D – yet Band D is exactly where the EU says most cars should be (the EU proposal is for an average of 130g/km for all cars by 2012). For the most polluting cars (Band M), there is only an additional £25 penalty, so a Porsche Cayenne Turbo with 358 g/km of CO2 will pay only fractionally more than a Band L Renault Espace 2.0 T Auto emitting 234 g/km of CO2.

The root of the problem seems to be that the budget makes the first year road tax highly variable – up to £950 for a Band M car. The assumption is that the first year road tax bill, which is different from the VED charged in subsequent years, will influence which cars are bought. Unfortunately for the government, its thinking is wrong-headed - the first year road tax bill is the one that matters least. Most new cars are bought with company money and the cost of the road tax is a negligible proportion of the overall cost – even £950 on the price of a £54,000 Range Rover V8 petrol is neither here nor there.

Most new car buyers are not paying for the price of the car - they are paying for the depreciation between the new price of the car and the value of it when they come to resell it. The most effective way of reducing sales of high-polluting vehicles would be to increase their rate of depreciation. £950 road tax on a five-year old Range Rover is a serious proportion of its value and would paradoxically have a much bigger impact on new car buyers as they would be faced with a far bigger loss of value.

While Clean Green cars can see the sense of placing a significant disincentive to buy cars that exceed the EU's 2012 130g/km average target, the disincentive has been applied to the wrong band, and there appears little consistency in the scale of the steps from this point upwards. And there is still no grading between 256g/km and the worst CO2 producer which currently produces 495g/km.

[Source: Clean Green Cars]