Car tax hikes confirmed in Budget and drivers could fork out over £5,400 next year

In those documents, the government said it would raise the standard Vehicle Excise Duty (VED) rates - more commonly known as car tax - for cars, vans and motorcycles in line with inflation from April 1, 2025

Some drivers are set to see a hike in car tax of up to nearly £5,500 a year under new plans unveiled in the Budget this week.

Rachel Reeves delivered her first Labour Budget this week and alongside her speech to parliament, the Treasury publishes a whole raft of documents alongside it detailing further updates and changes. In those documents, the government said it would raise the standard Vehicle Excise Duty (VED) rates - more commonly known as car tax - for cars, vans and motorcycles in line with inflation from April 1, 2025.

Car tax is paid every year and is a legal requirement for all vehicles registered in the UK. You need to pay tax when the vehicle is first registered and this covers the car for the next 12 months. You then pay vehicle tax every six or 12 months after this at a different rate. The first time you register your car, the rate you pay is based on your vehicle’s CO2 emissions, and this is what's changing.

Rates for cars emitting between one and 50 grams of CO2 per kilometre, including hybrid vehicles, will increase from £10 to £110 for 2025-26 for the first year. Similar hikes will be seen for cars emitting 51-75g/km of CO2 with the cost going from £30 to £130.

The biggest price hike will be seen for owners of vehicles that emit 76g/km of CO2 and above. Rates will "double from their current level" for 2025-26. The lowest rate in this category—76-90g/km—currently costs £135, so under the budget plans, they will have to pay £270. Brits who buy the most polluting petrol and diesel cars (over 255g/km) from April 1, 2025, will need to fork out £5,490 - up from the current £2745 - when rates double next year.

Alongside this hike, the Budget also confirmed that first-year VED rate for new zero-emission vehicles will remain low at £10 until the 2029-30 tax year - although it is £10 more than what drivers currently pay. The budget document said the move came as it wanted to "strengthen incentives" to purchase zero emission cars.

The document read: "The government will change the VED First Year Rates for new cars registered on or after 1 April 2025 to strengthen incentives to purchase zero emission and electric cars, by widening the differentials between zero emission, hybrid and internal combustion engine (ICE) cars."

Reacting to the Autumn Statement, Nicholas Lyes, director of policy and standards at IAM RoadSmart, said: "Increasing vehicle excise duty on all but zero emission vehicles in the first year will hit those buying new conventional vehicles in the pocket. A better solution to incentivise the take-up of electric vehicles would have been to cut VAT on the sale of new electric vehicles with a list price of £40,000 and under."