New car tax bands and VED rates confirmed by Labour ahead of next year

New car tax bands are coming in 2025 for petrol and diesel owners after the Labour Party Budget. Labour Party Chancellor Rachel Reeves has announced changes to first-year Vehicle Excise Duty (VED) tax rates for owners of brand-new vehicles.

Annual first-year VED rates will double with drivers set to pay out a staggering £5,490 from next April, up from £2,745. Brand new models emitting between 226-255g/km CO2 will rise from £2,340 to £4,680.

Modes producing between 191-225g/km CO2 will have fees rise to £3,300, double that of the current £1,650 rate. Brand new cars emitting between 51-75g/km of CO2 will increase from £30, or £20 in the case of hybrids, to £135.

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An d vehicles emitting between 1-50 g/km of CO2 such as most plug-in hybrid models, will pay VED for the very first time. The Budget documents state: "To help drive the transition to electric vehicles (EVs) the government is strengthening incentives to purchase EVs by widening the differentials in Vehicle Excise Duty First Year Rates between EVs and hybrids or internal combustion engine cars. The government is also maintaining EV incentives in the Company Car Tax regime and extending 100% First Year Allowances for zero emission cars and EV chargepoints for a further year."

It promises to be "maintaining tax incentives to purchase electric cars through Vehicle Excise Duty First Year Rates and the Company Car Tax regimes, as well as by extending 100% First Year Allowances for electric cars and chargepoints for a further year."

The government will uprate standard Vehicle Excise Duty (VED) rates for cars, vans and motorcycles, excluding first year rates for cars, in line with the RPI from 1 April 2025. 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.