The cost of car ownership and the rise in road tax

The price of owning and running a car in 2017 is expected to rise. Road tax will increase for any car registered after 1st April 2017 and it is expected that car insurance premiums are to rise due to a change in government policy.

Road tax rise

George Osborne announced an overhaul of the UK’s Vehicle Excise Duty (VED), the system for taxing vehicles. These new regulations will come into force on 1st April and mean extra costs for car owners[1].

After the change, the standard rate (the rate paid after the car’s first year registered) will be £140 per year for all cars that produce CO2 emissions. For cars that don’t produce any emissions, they will not have to pay the standard rate of road tax.

First-year road tax changes

When you register your car for the first time, the amount of tax has always varied depending upon how much CO2 your car produces. Under the current system, it varies from £0 per year for cars that produce up to 100g/km of CO2 up to £1120 for the first year on vehicles that produce over 255g/km of CO2.

However, under the new system, the amount of tax you will pay in the first year will have more options depending upon how much CO2 is emitted and the amount of tax paid is more substantial the higher up the scale your car goes. Under this new system, the amount ranged from £0 for cars that produce zero emissions, £10 for cars that produce between 1-50 g/km all the way up to £2000 for cars that produce over 255g/km.

Additional rates

With the change, there are now additional rates on cars valued more than £40,000 at the time of registration. Following the first-year of the car being registered, the owner of the car must pay £310 extra on top of their standard rate for the next five years. This relates to cars that produce emissions and cars that don’t.

For cars that produce CO2 emissions, AKA fuel-driven or hybrid cars, the owner must pay £450 in road tax for five years following the first-year registration. For electric cars, the owner will pay £310 a year for the five years following the first-year.

For those of you driving cars that run on alternative fuel as opposed to petrol or diesel, you will receive a £10 reduction on your road tax. For example, instead of paying the standard rate of £140, you will pay £130 for the year.

Rise in insurance premiums

2016 saw a sharp rise in the average price of insurance premiums. 2017 could see a continuing increase in what car owners should pay to insure their cars. This includes a change in government policy that could see insurance premiums rise more dramatically than they did last year.

Over 2016, the average cost of insurance premiums rose by £95, according to[2]. The average annual car insurance policy now stands at £767, which is an increase of 14%. In the previous 12 months, the average policy stood at £672. When this is broken down by age, drivers aged 26 and under, on average, have insurance premiums over £1000 and for 17-year-olds, the average premium is £2,112. This is the complete opposite at the other end of the scale with over 60s typically having insurance premiums under £500.

With regards to the gender gap, according to, men have seen their prices increase faster than women’s. Men have had theirs increase by 15%, which is on average a rise of +£104 a year. Women have seen theirs increase on average by 13% per year, so an additional +£84. The average insurance premium for a male driver is £812 and for female drivers, the average is £711. That is a gender difference of £101.

However, from the 20th March, insurance premiums could rise by a further £75. This is due to government proposals by Justice Secretary Liz Truss to change the personal injury discount rate. Usually, when an accident victim is paid compensation, they receive it in a lump sum, which is used to support them for the rest of their lives, especially in serious cases. However, someone can increase their lump sum by investing it and receiving cash in return. This is where the discount rate comes in and reduces the payout accordingly[3]. The government proposal is to lower the rate from 2.5% down to -0.75%. This will result in more money for the victims and higher costs for the insurers, which could lead to insurers covering this higher cost by raising insurance premiums.

Huw Evans, director general of the Association of British Insurers, said: “Cutting the discount rate to -0.75% from 2.5% is a crazy decision by Liz Truss. Claims costs will soar, making it inevitable that there will be an increase in motor and liability premiums for millions of drivers and businesses across the UK. We estimate that up to 36 million individual and business motor insurance policies could be affected in order to over-compensate a few thousand claimants a year.”[4]

With the price of running the vehicles rising, it might be time to consider finding cheaper ways of purchasing your cars. Whether you need it for personal use or for business use, car finance can be an excellent way of reducing the cost of acquiring a car. If you run your own business and need a vehicle quickly before these changes come in, Hippo Motor Finance offers self-employed car finance and they can get you a car within ten days of your enquiring with them.