Chancellor George Osborne has announced a change in the structure of tax on new cars from 2017.
All new cars will be classed in one of three new bands: zero-emission, standard and premium. Tax will then be paid accordingly with no special rate for the first year.
Around three-quarters of all new cars currently pay zero First Year tax.
Mr Osborne said “every single penny” of revenue will be ring-fenced for a ‘Roads Fund’ which will pay for roads and maintenance.
The Summer Budget document adds: “First year rates will vary according to the carbon dioxide emissions of the vehicle.
“There will be a flat standard rate of £140 for all cars except those emitting zero grams of carbon dioxide per kilometre (CO2g/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 five years in which the standard rate is paid. The new VED system will be reviewed as necessary to ensure that it continues to incentivise the cleanest cars.”
The Chancellor added he would continue to freeze fuel duty this year.
He also said the reductions in tax on North Sea oil and gas, which were initially announced in March, will go ahead – which includes the so-called Supplementary Charge being reduced from 30% to 20%.
He said: “Today we broaden the types of investment that qualify for allowances.”
He also announced the Climate Change Levy exemption for renewable electricity will be scrapped.
Mr Osborne said: “Now we have a long term framework for investment in renewable energy in place, we will remove the out-dated Climate Change Levy exemption for renewable electricity that has seen taxpayer money benefitting electricity generation abroad.”
The document also states the government aims to develop a “simple, fair and more efficient energy environment for businesses”.
It adds: “The government will review the business energy efficiency tax landscape and consider approaches to simplify and improve the effectiveness of the regime.”
It has also pledged to promote low carbon investment and innnovation to support global action on climate change, aiming to push for a climate deal which limits global warming to 2°C in Paris later this year.