4x4 equals more tax as gas guzzlers are targeted in fight against car pollution

Government plans 'fee-bating' scheme in drive to hit goal for cutting carbon emissions, writes Severin Carrell

Motorists who buy fuel-hungry executive cars and 4x4s will be forced to pay a levy under plans for a radical new taxation system to promote the sale of environmentally friendly cars.

Motorists who buy fuel-hungry executive cars and 4x4s will be forced to pay a levy under plans for a radical new taxation system to promote the sale of environmentally friendly cars.

Under the proposal, the taxes raised from the sale of larger vehicles would then be spent on giving a grant to motorists who opt for far more fuel-efficient and cleaner cars - a system known as "fee-bating".

The plan is being floated at a senior level in the Government as part of discussions over introducing tougher measures to cut carbon dioxide emissions and pollution from the UK's growing number of cars, vans and lorries.

Ministers admit their task has become more urgent after the Prime Minister admitted in December that the Government will fail to hit its own target of cutting CO ₂ emissions by 20 per cent by 2010, unless dramatic reductions are made.

Last week, at the World Economic Forum in Davos, Switzerland, Tony Blair repeated his claim that the UK is taking a leading role in combating climate change. However, ministers are worried about the continuing increase in greenhouse gas emissions from road transport.

The Treasury's existing measure for promoting greener cars - setting higher bands of vehicle excise duty based on the fuel efficiency of the vehicle - seems to have failed to change private car-buying behaviour. Critics claim this is because taxes for gas-guzzlers are still too low.

In 2003, privately bought cars were less fuel efficient than in 2002 - an unexpected development put down to increasing affluence, falling prices for larger cars and growing sales of 4x4s, known in the industry as sports utility vehicles (SUV). Only company car fleet owners bought more fuel-efficient vehicles, chiefly fuelled by diesel.

Supporters of "fee-bating" claim it would have a significant impact on car-buying behaviour because it would directly reward "green" cars, without increasing the total tax burden on motorists. It would largely replace vehicle excise duty, which currently raises £4.8bn a year.

It would involve setting a dividing line for the payment of duties and rebates, perhaps at about 185 grams per kilometre. Cars with emissions above 185g per km would be charged a levy based on a sliding scale. The higher the CO ₂ emissions, the higher the charge.

Cars under 185g per km would attract grants, again based on a sliding scale, which would give higher subsidies for the lowest emissions.

The major problem would be in ensuring the scheme was self-financing by accurately estimating the impact it would have on car-buying behaviour. Ministers would have to ensure it did not lead to a stampede for greener cars, which would lead to a collapse in sales of luxury cars and SUVs, so requiring the Treasury to pay out.

Transport ministers are also optimistic about two new schemes to promote greener cars being introduced this year. One is a new grant system for ultra-efficient and ultra-clean cars; the other, the introduction of much easier-to-understand colour-coded energy labels for new cars, based on the "A to G" labels used for fridges, freezers and washing machines.

Ministers claim both could substantially affect car-buying.