The Chancellor abolished road tax on old cars. Here's how to turn that to your advantage

If you are quick you could cut your motoring costs by pounds 140 a year by buying a serviceable 25-year-old car before prices rise to absorb the unexpected bonus Kenneth Clarke handed out to owners of old cars when he abolished the road tax for "classic" vehicles 25 or more years old.

There are an estimated 150,000 cars still roadworthy which qualify for the concession, including thousands of Morris Minors, early Minis, P4 and P5 Rovers, and Volkswagens, as well as established classics like vintage Rolls-Royces, Bentleys, and Aston Martins.

It is still possible to find a roadworthy Sixties car for under pounds 1,000, and pounds 2,000 will buy a wide range of usable vehicles, which could now save you up to pounds 750 in road tax over a five year period.

They will still have to pass an MOT test, have valid insurance and apply annually for a tax disc, but it will be free with immediate effect. Running costs may be rather higher than for a more modern car, but many of the more common cars are catered for by specialised car clubs and specialist suppliers who can renovate engines, gearboxes, fuel pumps and remanufacture body panels, trim and and rubber mouldings.

Old cars do not much like cheaper lead-free fuel, and an old Jaguar will only do perhaps 15 miles to the gallon, an old Rover 20 miles per gallon, but a Morris Minor will give you 30 miles and a Mini should do 40 miles to the gallon.

Speeds and acceleration will also be rather less spectacular than modern cars, but insurance costs are generally much less than for modern cars, especially if owners can garage their cars and agree to a limited mileage. There are several specialist classic car insurers like Footman James, Bain Clarkson or the Watford-based Paramount Direct. It is possible to insure a car worth pounds 1,500 to drive 3,000 miles a year for around pounds 100 a year even in central London.

The Chancellor's largess was all the more unexpected because it stems from a proposal to introduce continuous licensing in order to hunt down the estimated million tax dodgers who regularly drive untaxed cars on the road.

Continuous licensing would require owners to license their cars even when they are off the road, and perhaps pay a reduced rate of duty, or backdate payments when cars returned to the road.

These proposals have also been dropped, in favour of a requirement simply to notify the DVLC when cars are taken off the road and brought back, and to confirm their status once a year.

This means that old cars from the Seventies and early-Eighties, which have become old bangers and have not yet attained the status of even prospective classics, can now be stored without penalty to wait their turn for tax exemption.

Some owners of genuine 25 year-old runners are still slightly suspicious that a future government will bow to the car manufacturers and green lobbies and limit the road use of classic cars.

In the meantime, however, enthusiasts are pinching themselves to make sure they are not dreaming. Owners of cars over 25 years old which are currently taxed will also get an automatic refund of tax on their existing licences without even having to apply for it.