Summer Budget 2015 reaction08 Jul 2015

The Chancellor has announced ring-fenced funding for spending on strategic roads.

In the Summer Budget 2015 Mr Osborne said that the proceeds of Vehicle Excise Duty would form the basis of a new road fund. It would be the first time since the 1930s that a dedicated road fund has been seen.

The scheme is very similar in design to that outlined in a paper by Brian Wadsworth published by the RAC Foundation last month.

The Chancellor also said that a new system of VED banding would be created coming into operation in 2017 for all new cars from that date:

“First year rates (FYRs) will vary according to the carbon dioxide emissions of the vehicle. There will be a flat standard rate (SR) of £140 for all cars except those emitting 0 grams of carbon dioxide per kilometre (gCO2/km), for which the standard rate will be £0. Cars with a list price above £40,000 will attract a supplement of £310 per year for the first 5 years in which the standard rate is paid.”

Steve Gooding, director of the RAC Foundation, said:

“We welcomed the recent introduction of the long-term investment plans for major roads, but we were concerned about how they would be paid for. Now we know.

“VED was introduced well over a century ago and for many years provided ring-fenced funding for roads. With this bold move, we have today gone full circle.

“This certainty of funding for Highways England is something we have called for and are pleased to see delivered.

“Thirty seven million drivers will also be pleased that at least some of the tens of billions of pounds they contribute in tax each year is now guaranteed to be used for investment in strategic roads.

“But it is important that we see investment in all our roads, not just the 2% that are motorways and major A roads.

“Drivers will be less pleased that their costs are likely to increase because of the VED banding changes, though this financial pain will in part be set off by the real term drop in showroom prices we have seen in recent years.”

On the announcement that the first MOT for cars would now come after four years rather than three Steve Gooding said:

“This move recognises that modern vehicles are increasingly reliable and will save drivers money. But the MOT does focus people’s minds on the state of their cars and they will need to keep an eye on the perishables, whether it be their tyres or wiper blades.”

This is a brief history of VED:

1889 – Vehicle Excise Duty first introduced.

1909 – In the ‘People’s Budget’ Lloyd George announced that the proceeds of VED would be used to fund the building and maintenance of the road network.

1920 – The terms Road Fund and Road Fund Licence came into existence.

1936 – Hypothecation or ring-fencing of the Road Fund ended by the Finance Act.

2014 – 69% of new cars registered in Great Britain were exempt from VED in their first year on the road because they emitted less than 131gCO2/km and fell into bands A-D.

2013/14 – VED raised £6.1 billion with the money going into the Treasury’s general consolidated fund. (By way of comparison fuel duty raised £26.9 billion.)



Philip Gomm – Head of External Communications – RAC Foundation

020 7747 3445 | 07711 776448 | [email protected]

Notes to editors:

The RAC Foundation is a transport policy and research organisation that explores the economic, mobility, safety and environmental issues relating to roads and their users. The Foundation publishes independent and authoritative research with which it promotes informed debate and advocates policy in the interest of the responsible motorist.

The RAC Foundation is a registered charity, number 1002705. 

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