‘Poverty premium’: Government urged to change car tax rules as low income drivers punished

Martin Lewis gives money-saving advice on VED car tax

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The report, from the University of Manchester shows that lower income households drive 40 percent fewer miles than those in the higher income bracket. Households with an annual income of under £18,125 are driving fewer miles, making fewer trips and are priced out of buying more efficient, newer cars.

Despite this evidence, car tax is still charged at a flat rate which means that lower income households end up paying for wealthier households to use the roads.

Due to the current flat rate of car tax, this means that six million lower income drivers are paying over 212 percent more per mile for their car tax than the wealthiest drivers.

When the driving habits of lower and higher income households were compared, the analysis shows driving distance, frequency and affordability as the key differentials.

Lower income drivers have significantly less impact on UK roads, covering 40 percent fewer miles and making 17 percent fewer trips than those in the higher income bracket.

When comparing the two groups, this gave an effective car tax rate of 10p per mile for lower income drivers.

In comparison, higher income drivers enjoyed an effective rate of only 3.2p per mile.

When it comes to buying newer, greener vehicles, just one in seven (15 percent) households in the lowest income group own a car less than three years old. 

This is compared to three in 10 (28 percent) highest-income households.


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Additionally, drivers from low income households are less likely to be able to afford more efficient cars such as electric or hybrid models, with just 22 percent of this group paying the cheapest tax bands.

Because of this research, car insurance company By Miles, are calling for urgent car tax reform.

They are calling on the Government to implement a new pay-by-mile car tax system that would be usage based, and result in cheaper car tax for lower mileage drivers.

James Blackham, CEO of By Miles, urged the Government to implement new measures to protect lower income drivers.

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