Some Forecasts in-depth pages have not been updated for the latest forecast. We will endeavour to update them as soon as possible.

Vehicle excise duty (VED) is a tax levied on every vehicle using public roads in the UK and is collected by the Driver and Vehicle Licensing Agency (DVLA). For most cars registered prior to April 2017, the amount of VED due depended primarily on the car’s official CO2 emissions. For cars registered from April 2017 onwards, first year VED payments are related to CO2 emissions, but subsequent payments are not.

For instance, drivers of relatively fuel-efficient petrol or diesel cars would typically pay between £0 and £165 for the year when they first register the vehicle, depending on the car’s official CO2 emissions. Drivers of less fuel-efficient cars would pay more, up to a maximum of £2,070. More information can be found on the website.

For the second-year payment onwards, most drivers will pay a fixed rate regardless of the CO2 emissions of their vehicle. Some drivers may also have to pay a luxury supplement if they drive a car with a ‘list price’ of more than £40,000. VED information on new or used cars can be found using the Vehicle Certification Agency’s online tool.

In our latest forecast, we expect VED to raise £6.5 billion in 2019-20. This reflects our assumption that the total number of VED-paying vehicles will rise to around 37.5 million in 2019-20, paying an average rate of around £175 a year. The £6.5 billion total would represent 0.8 per cent of all receipts and is equivalent to around £230 per household and 0.3 per cent of national income.

  Latest forecast

Our latest fiscal forecast was published in March 2019. VED receipts are expected to slightly increase in cash terms in 2019-20, remaining relatively flat as a share of GDP for the forecast period. Receipts in cash terms grow broadly in line with the wider economy thereafter. This reflects the combined effects of growth in the vehicle stock, trends in fuel efficiency, the uprating of duties in line with RPI inflation and the major reforms announced at Summer Budget 2015, which are outlined in the Policy costings section below.


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  Latest monthly data

VED receipts are spread relatively evenly over the year. Monthly variation reflects the seasonality in car purchases, for example related to the release of the latest number plates in March and September each year.

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  Forecast methodology

Forecast process

The OBR commissions forecasts of VED receipts from HM Revenue and Customs for each fiscal event. The forecasts start by generating an in-year estimate for receipts in the current year, then uses a model to forecast growth in receipts from that starting point. We provide HMRC with economic forecasts that are used to generate the tax forecasts. These are scrutinised in a challenge process that typically involves two rounds of meetings where HMRC analysts present forecasts to the Budget Responsibility Committee (BRC) and OBR staff. This process allows the BRC to refine the assumptions and judgements that underpin the forecasts before they are published in our Economic and fiscal outlooks.

Forecasting models

The forecasting model is based on Driver & Vehicle Licensing Agency (DVLA) data covering the entire vehicle stock, enabling vehicle types to be disaggregated into the many different VED bands.

Receipts are calculated by multiplying the stock of vehicles by the appropriate duty rate. Rates are revalorised each year in line with RPI inflation (subject to any pre-announced policies) and rounded to either the nearest £1 or £5, depending on the tax band. Future vehicle stock levels are forecast by applying assumed vehicle scrappage rates to the existing vehicle stock and by adding expected new car sales.

The forecast of new car sales is generated using an econometric regression relating them to household spending on durable goods. The stock of vehicles paying VED is currently around 35 million, so new car sales make up a relatively small part of the stock each year. New cars also emit less CO2 than the average of all cars, so attract lower first-year VED rates under the current system. The effect of new car sales on future VED rates was more pronounced under the previous system, where lower CO2 emissions attracted permanently lower VED rates. For instance, this means that the 2.4 million new petrol and diesel cars sold in 2014-15 are expected to account for only around 3 per cent of total VED receipts this year, despite accounting for just under 7 per cent of the total vehicle stock.

Main forecast determinants

The main determinants of our VED forecast are those related to the tax base and those that are used by the Government in setting parameters of the tax system. See the ready reckoners section below for more information on the effects of these determinants on VED receipts.

Main forecast judgements

The most important judgements in our VED forecast are related to the composition of the vehicle stock. Since most cars currently on UK roads were registered prior to April 2017, their VED payments are linked to official CO2 emissions – so less fuel-efficient cars are liable to higher VED rates. Alongside those, we need to make several other forecast judgements. These include:

  • In-year estimate: year-to-date receipts provide valuable information about the likely outturn for the current year. Judgements are made whether to push any unexplained shortfall or excess through to our forecasts for future years.
  • EU efficiency targets: the EU has set out regulations on new car CO2 emissions, which the UK legislated for in April 2009. New car efficiency is forecast by the Department for Transport and assumes that car manufacturers reach their efficiency targets at the EU level by the required dates. As cars become more efficient over time a higher proportion fall into lower VED bands. This puts downward pressure on the VED forecast, although less so under the regime from April 2017 in which only first-year VED rates are affected.
  • We might adjust the forecast of new car sales if we judge that they are likely to be higher or lower than raw output from the econometric model. For example, an adjustment could be made to reflect the positive impact of any car scrappage schemes. Offsetting adjustments would then be made to later years to account for these sales being brought forward.
  • Similarly, we might adjust the forecast of scrappage rates if we judge that older vehicles are being scrapped faster or slower than is currently assumed in our model.

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  Previous forecasts

From 2010 to 2013, our forecasts were generally revised down and receipts were expected to decline over time, predominantly due to the then regime being primarily dependent on CO2 emissions and therefore sensitive to rising fuel efficiency of new cars. The Government’s temporary scrappage scheme introduced during the 2008-09 recession also led to significant numbers of inefficient cars being removed from the roads. The upward sloping receipts forecasts since our July 2015 forecast reflect the new VED banding policy that was announced in Summer Budget 2015 and reduced the sensitivity of receipts to rising fuel efficiency. This is outlined in the Policy costings section below.

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  Policy measures

Since our first forecast in June 2010, governments have announced 13 policy measures affecting our VED forecast. The original costings for these measures are contained in our policy measures database and were described briefly in the Treasury’s relevant Policy costings document. For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Annex A of the relevant Economic and fiscal outlook.

Key VED policy changes since 2010 have included:

  • In successive Budgets, VED rates on Heavy Goods Vehicles (HGVs) and buses have been frozen. This has been the case since the fuel protests in 2000.
  • In Budget 2013, a road user levy was introduced for all HGVs over 12 tonnes using UK roads, including foreign hauliers. For the same vehicles, VED was reduced and reduced pollution certificates were removed, as was the 10 per cent surcharge on six monthly VED payments.
  • In Autumn Statement 2013, a direct debit scheme was introduced that allowed motorists to choose to pay VED either annually, bi-annually or in monthly instalments by direct debit. A 5 per cent surcharge was introduced for those who pay by direct debit bi-annually or monthly. This removed the need for drivers to display a paper tax disk in their vehicle.
  • In Budget 2014, the exemption on vehicles over 40 years old was extended on an annual basis and the reduced VAT rate for vans meeting environmental standards was frozen.
  • In Summer Budget 2015, a new VED banding system for cars first registered on or after 1 April 2017 (as described in the Overview section) was introduced.
  • In Autumn Budget 2017, a surcharge on first-year duty rates was announced for diesel cars that do not meet certain efficiency standards.

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  Ready reckoners

‘Ready reckoners’ show how our fiscal forecasts could be affected by changes in selected economic determinants. They are stylised quantifications that reflect the typical impact of changes in economic variables on receipts and spending. These estimates are specific to our March 2018 forecast and we would expect them to become outdated over time, as the economy and public finances, and the policy setting, continue to evolve. They are subject to uncertainty because they are based on models that draw on historical relationships or simulations of policy settings.

The table below shows that:

  • 1 per cent higher real durable consumption growth would increase VED receipts by £5 million due to the effect on new car sales;
  • 1 per cent higher RPI inflation would increase VED receipts by £60 million, since duty rates would be uprated by a higher amount. VED rates are rounded to either the nearest £1 or £5, so the impact on VED receipts is not linear – the effect would increase to £85 million in the following year.

VED ready reckoner

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