The new Labour government’s budget will see first year vehicle excise duty (VED) rates increase for all cars from 1 April 2025. Now, electric cars are liable for the charge and all combustion cars have had their rates increased in a move legislators say will ‘strengthen incentives to purchase zero emission and electric cars.’
Labour has made a lot of changes to what was already a rather confusing tax system. So, in this guide, we’ll explain all the changes the government has made – and reveal how you can make your money go further by buying the right new car.
How does road tax work on a new car?
Brand new cars are subject to a higher rate of VED for their first year on the road. The amount drivers pay is tied to the car’s CO2 emissions – and it rises periodically in line with inflation. In theory, that means a car’s first year road tax is directly linked to how environmentally friendly it is.
If you’re paying for a car in cash or with a personal loan, you’ll need to factor that additional cost into the purchase price. However, if you’re paying for your car via PCP, leasing or finance, the first year VED charge will likely be factored into the monthly payments. That isn’t always the case, though, so ask to make sure.
What has the new government changed?
First year road tax was always quite expensive for combustion engine vehicles, but the changes brought in by the Labour government have increased those fees further. Firstly, electric cars – which previously enjoyed free road tax – will be liable for a £10 charge for their first year on the road from 1 April 2025 until the 2029/2030 financial year.
The charges for petrol and diesel engine cars have increased more dramatically. Now, all vehicles (including hybrids) that emit between 1–50g/km CO2 will pay £110 for their first year on the road, while those producing 51–75g/km of CO2 will pay £130. That’s a £100 increase over the outgoing rate.
Any car that emits more than 76g/km of CO2 will have its first year VED rate doubled from their current level for the 2025/2026 financial year. That means, in the worst-case scenario, drivers of the most polluting luxury vehicles (such as a V8 Range Rover) will pay £5,490 on top of the car’s purchase price to drive the car on the road.
This sounds like a fair system in principle – but we’ve dug into the figures and found some oversights. The first-year tax rate for ultra lightweight, super super-efficient Suzuki Swift mild hybrid will be £390, as it emits 99g/km of CO2.
But, the Porsche Cayenne Turbo S E-Hybrid – an expensive, four-wheel drive V8-powered SUV that weighs 2,570kg – will only need to pay for £110 in tax for its first year on the road, as it’s a plug-in hybrid with an official CO2 rating of between 39–45g/km.
That seems a little imbalanced because, if the Cayenne’s owner isn’t militant about recharging battery, there’s no way it’ll achieve those figures in the real world. The Swift will probably be a more environmentally friendly car in real-world conditions, yet it’s owner will pay more in road tax.
Why is first year road tax so high?
The first year VED regime was introduced to dissuade people from buying cars that emit high levels of CO2. It replaced previous VED structures based on engine size and CO2 emissions. They remain in place for older cars, so it’s still possible to find petrol and diesel used cars with free tax.
Why has my road tax increased in 2024?
Unfortunately, as inflation rises in the UK, so do our car tax rates. As part of the spring budget, the previous Chancellor of Exchequer confirmed this increase would be based on inflation in line with the retail price index (RPI).
The standard rate road tax figures (for cars two years and older) will also increase by the retail price index. The government hasn’t yet confirmed what the standard rate of road tax will be for the 2025 financial year, as it doesn’t yet know next year’s rate of inflation, but we’ll update you as soon as the figures become available.
Below, we’ve provided tables of both the upcoming and outgoing VED rates so you can see the effects of the changes.
First year VED rates from 1 April 2025
| CO2 (g/km) | Diesel cars (TC49) that meet RDE2 standard and petrol cars (TC48) | All other diesel cars (TC49) | Alternative fuel cars (TC59) |
| 0 | £10 | £10 | £10 |
| 1- 50 | £110 | £110 | £110 |
| 51 – 75 | £130 | £130 | £130 |
| 76 – 90 | £270 | £350 | £250 |
| 91 – 100 | £350 | £390 | £330 |
| 101 – 110 | £390 | £440 | £370 |
| 111 – 130 | £440 | £540 | £420 |
| 131 – 150 | £540 | £1,360 | £520 |
| 151 – 170 | £1,360 | £2,190 | £1,340 |
| 171 – 190 | £2,190 | £3,300 | £2,170 |
| 191 – 255 | £3,300 | £4,680 | £3,280 |
| 226 – 255 | £4,680 | £5,490 | £4,660 |
| Over 255 | £5,490 | £5,490 | £5,490 |
First year VED rates for 2024
| CO2 (g/km) | Diesel cars (TC49) that meet RDE2 standard and petrol cars (TC48) | All other diesel cars (TC49) | Alternative fuel cars (TC59) |
| 0 | £0 | £0 | £0 |
| 1- 50 | £10 | £10 | £10 |
| 51 – 75 | £30 | £30 | £30 |
| 76 – 90 | £135 | £175 | £125 |
| 91 – 100 | £175 | £195 | £165 |
| 101 – 110 | £195 | £220 | £185 |
| 111 – 130 | £220 | £270 | £210 |
| 131 – 150 | £270 | £680 | £260 |
| 151 – 170 | £680 | £1,095 | £670 |
| 171 – 190 | £1,095 | £1,650 | £1,085 |
| 191 – 255 | £1,650 | £2,340 | £1,640 |
| 226 – 255 | £2,340 | £2,745 | £2,330 |
| Over 255 | £2,4745 | £2,745 | £2,735 |
