The UK government has announced the first increase in car taxes in more than a decade, signalling a significant shift in fiscal policy as the country faces mounting economic pressures.
Chancellor Rachel Reeves confirmed that Vehicle Excise Duty (VED), commonly known as car tax, will rise for petrol and diesel vehicles, marking the first increase since 2014.
The Treasury has estimated that the rise could generate hundreds of millions of pounds in additional revenue. Officials have indicated that the funds will be directed toward a combination of infrastructure projects, such as road maintenance, and incentives for greener transport options, including low-emission vehicles. The government says the hike is necessary to maintain public finances while continuing to invest in the transition to a more environmentally sustainable transport system.
Reeves defended the move, stating: “This step is essential to ensure the sustainability of our public finances while allowing us to continue supporting investment in roads, transport, and initiatives to promote cleaner vehicles. It is a responsible approach to balancing fiscal needs with our long-term climate goals.”
The increase will affect both private and commercial vehicles, with banding and rates to be fully detailed by HM Revenue & Customs in the coming weeks. Notably, electric vehicles are largely exempt, reflecting the government’s push to accelerate the shift toward zero-emission transport.
Motoring organisations have responded critically, warning that the timing of the tax rise is particularly challenging for households already grappling with soaring energy bills, inflation, and high petrol costs. Simon Williams, spokesperson for the RAC, said: “Increasing car taxes for the first time in 12 years will place additional pressure on families and commuters. While long-term environmental goals are important, the government must be mindful of the immediate financial impact on motorists.”
The Federation of Small Businesses also expressed concern, highlighting that the rise could disproportionately affect smaller enterprises reliant on transport and delivery services. Business leaders warned that the cumulative effect of higher operating costs, including fuel and insurance, may further strain SMEs already navigating a fragile economic environment.
Environmental campaigners, in contrast, welcomed the move as a necessary step to reduce emissions and encourage the adoption of greener vehicles. A spokesperson for the Climate Coalition commented: “Increasing car taxes on petrol and diesel vehicles is a key lever to nudge motorists toward electric or low-emission alternatives. This is an important part of meeting our climate targets and reducing air pollution.”
The car tax rise comes as the UK government continues to navigate competing economic priorities, including public spending pressures, support for the cost-of-living crisis, and investments in sustainable infrastructure. Analysts suggest that the hike may be part of a broader trend toward using targeted taxation to encourage behavioural change, while simultaneously shoring up the public finances for future challenges.
The new rates will come into effect from April 2026, with more details expected in the official VED tables from HMRC. Motorists are being advised to review the updated bands and prepare for the changes, which could vary significantly depending on vehicle type and emissions.
Economists warn that while the increase is modest in absolute terms for many households, it could have a broader economic impact by adding to the cost pressures on consumers and businesses. The government maintains that the measure strikes a balance between fiscal responsibility, environmental objectives, and maintaining fairness for motorists.
