- New car prices are expected to increase in the coming weeks by 2 to 3%
- Changes to VED on April 1 will significantly increase the amount of tax paid on a low-emissions petrol or diesel car over a long-term period
- Car insurance premiums are at their highest for four and a half years and IPT is due to rise to 12% in June
- Fuel is the most expensive it’s been for two years and OPEC’s oil production freeze could push pump prices even higher
If you’re planning to buy a new car, it might be an idea to get your skates on.
Forthcoming changes to car tax and manufacturers bumping up model pricing will make new vehicle ownership that bit more expensive.
But the gloomy outlook isn’t exclusively for those looking to make a purchase in a showroom this year – running costs for all drivers are on the increase and could continue to spiral, if experts are right.
Here are four reason why 2017 could be the year that makes car ownership a significant financial burden.
Motorists will need to keep a close eye on the pennies: Here are four reasons why the cost of car ownership is going to escalate in 2017
1. New car prices are expected to increase
The representative body for the automotive industry has warned that car prices will rise in the coming weeks following the drop in value of the pound.
Chief executive at the Society of Motor Manufacturers and Traders, Mike Hawes, told Sky News earlier this month that car customers will see the price of new vehicles increase by two to three per cent in the first quarter of the year.
American electric car maker Tesla has already responded to the slumping sterling, citing ‘currency fluctuations’ for its five per cent price model range hike that came into force on Sunday (January 15th).
Tesla increased the price of its entire car range on January 15 by 5% in the UK. That includes the new Model X SUV pictured
But the wider market is also expected to follow suit, according to Hawes, who issued the warning to consumers while announcing record-breaking new car registration figures for 2016.
When motoring publication Auto Express last reviewed new car prices in the UK in 2013, it said that Britons spend around £27,500 on a new car – a three per cent increase would mean an extra £825 on that.
In reality, it is likely to be more, as car prices will be higher now than four years ago.
With Brexit on the horizon too, industry experts have also alerted buyers that they could face having to pay £1,500 more for imported cars, if the UK’s separation from the UK leads to new tariffs. These make up more than 85 per cent of all new vehicles bought in Britain last year.
2. New car tax rules will hike the cost of buying and owning
A study by consumer website HonestJohn.co.uk has found that seven in ten new car buyers will be paying more tax when changes are introduced to Vehicle and Excise Duty bands in three months’ time.
Why is it happening? Because CO2 emissions figures for cars have now dropped so low that many drivers are having to pay very little tax or none at all, which is leaving a void in the Treasury’s income.
The new regulations will mean higher tax outgoings for all new cars – except zero emissions ones – in the first year of registration, and a flat rate of £140 thereafter.
But there is a major catch. Cars costing more than £40,000 new will face an extra £310 surcharge for five years after the first year of ownership.
Only zero-emissions, pure-electric models will be exempt from paying car tax but hybrids – combining electric and combustion power – will fall foul of the new regulations. And even these zero emission cars will have to pay the £40,000-plus surcharge.
|Emissions (g/CO2/km)||First-year rate||Standard rate|
|* cars over £40,000 (listed as Premium) pay an annual £310 supplement for the first 5 years at the standard rate (excluding the first year rate)|
Vehicles built and purchased before 1 April 2017 will not be affected by these rates.
The Ford Fiesta 1.0 Ecoboost 100PS was the best-selling car in the UK last year and until March 31 is free to tax. However, buy one from April 1 and you’ll have to pay £120 for the first year and £140 for every year beyond that
Greener cars will be hit
While some owners – especially those with higher emissions vehicles – will have to pay less than they currently do in the long run, buyers of the most economical petrol and diesel cars are going to be hit hardest.
Take the most bought car on the market today – the Ford Fiesta 1.0 Ecoboost 100PS. With 99g/km CO2 emissions, owners currently have to pay no tax whatsoever. However, from April 1, it will cost £120 to tax in the first year and £140 every year after that.
Cars costing more than £40,000 get an extra charge
And to add insult to injury, drivers of ‘Premium models’ with a value of more than £40,000 will also have to pay an additional £310 a year on top of their standard rate (which comes into force in the second year of ownership) for five years.
VED IN THE FUTURE
Following the Volkswagen diesel emissions cheating scandal in 2015, the EU has been forced to rethinking how emissions and fuel economy is calculated for new vehicles.
With various loopholes and lab-based testing not representing real-world driving currently, the regulations are expected to change to include measurements taken outside of laboratories.
This will ultimately see the claimed CO2 emissions figures – used to differentiate VED bands – increase to more realistic levels.
As a result, we could see car models jump a VED band or two when more representative figures are published.
However, the European Commission’s proposed real-world driving (RDE) test was initially planned to be introduced this year and has yet to be confirmed.
Don’t think you can use this £40,000 ceiling as a bargaining chip with dealers either – the law defines that the value of the car is based on the list price given by the manufacturer (not inclusive of ‘On the road’ additions including delivery and registration).
Be careful, though, as that £40,000 figure DOES include the cost of options, so buyers of cars close to the £40,000 threshold will need to be savvy about which additional features they choose for their vehicle to avoid having to pay £1,550 extra in tax from year two to year six.
For instance, you could buy a standard Audi Q5 2.0 TDI quattro S-line diesel that’s worth £39,405 and pay £200 tax for the first year (based on a 133g/km CO2 output) and £140 every year after. Over six years that would take the tax total to £900.
But if you bought the same car and wanted metallic paint – a £650 optional extra – the value of the vehicle then increases to £40,025, above the premium model threshold and is therefore subject to an additional £310 a year on top of the standard rate for half a decade. That takes the six-year tax total to £2,450 for a car that’s just £650 more expensive to buy.
It also means there are serious inconsistencies with the amount of tax paid on the emissions a vehicle produces. For example, a high-spec Mitsubishi Outlander PHEV (£41,399) might only emit 41g/km CO2, but the value means a buyer from April 1 will have to pay £2,260 in car tax over six years.
A Ford Focus RS buyer, however, will only have to pay £1,700 over the same period for a £30,000 high-performance hot hatch that emits 176g/km CO2 – more than four times the hybrid Mitsubishis output.
|Model||RRP||CO2 emissions (g/100km)||First year rate||Standard rate||Standard rate over 5 years||Premium model rate||Premium model rate over 5 years||Total tax over 6 years|
|Mitsubishi Outlander PHEV||£41,399||41||£10||£140||£700||£310||£1,550||£2,260|
|Ford Focus RS||£30,870||176||£800||£140||£700||n/a||£0||£1,700|
The Mitsubishi Outlander PHEV (left) is an eco-friendly hybrid SUV but it will cost £560 more to tax over six years than a ferocious Ford Focus RS hot hatch (right)
3. Insurance is on the rise and IPT is due to increase
According to the latest Confused.com Car Insurance Price Index, the average premium at the end of 2016 was £767. That was a 14 per cent increase on the year previous, accounting for an extra £95 on average.
Premiums have been gradually increasing since the end of 2015, and in the last quarter of 2016 alone jumped four per cent- the equivalent of £30 on average.
Much of this rise was fuelled by an increase in Insurance Premium Tax to 10 per cent in October. And guess what, there’s another rise due this year.
IPT will increase to 12 per cent in June, it was announced by Chancellor Philip Hammond as part of his Autumn statement last year. The news means the price of all insurance – including motor – will again rise.
Confused.com’s insurance index showed that premiums are higher now than they have been since the middle of 2012
James Dalton, director of general insurance policy at Association of British Insurers, said ‘ambulance chasing’ lawyers and fraudulent whiplash claims had pushed the price of insurance higher during 2016.
He said: ‘Pressure is growing on premiums. Cold callers and ambulance-chasing lawyers are still finding ways to exploit the system, with government data suggesting a five per cent increase in whiplash style claims. This is driving up costs for honest motorists.
‘In addition, the Government has doubled Insurance Premium Tax in just over a year, and repair bills are going up as cars get more sophisticated.
‘So while insurers are doing all they can to control costs, these pressures show how important it is that the Government’s latest proposals to tackle low value whiplash style claims are implemented fully and as quickly as possible, and that there is no rise in Insurance Premium Tax.’
The oil production freeze announced by OPEC in November has seen oil prices surge by $11 a barrel by the end of 2016
4. OPEC oil production freeze could see petrol prices spiral
UK petrol prices are currently the most expensive they’ve been for over two years, Government figures showed last week.
The fall in the pound has been a major contributor to that, as oil is priced in US dollars and that price is rising.
Motorists filling up at the pumps are now paying around £1.18 a litre for petrol, the Department for Business, Energy and Industrial Strategy said. At an average of £1.21 a litre, the cost of diesel has also reached its highest since January 2015. It means that the price of petrol and diesel has jumped by 4p in the last five weeks.
These recent higher prices at the pumps have been triggered by a deal by OPEC and other major oil producing countries to freeze production. As a result, the cost of a barrel of oil has gone up from around $45 in mid-November to $56 by the end of December.
The RAC warned that a continued production stall and the slumping pound could combine to hammer British drivers’ wallets.
Fuel spokesman for the motoring group, Simon Williams, said: ‘If in the months ahead the barrel price was to get nearer to $60 and the pound was to weaken further then that would be the worst possible combination for motorists.’
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