Chancellor Rachel Reeves has confirmed a £425 annual tax on luxury cars valued over £40,000, affecting nearly one million drivers, in what is expected to be one of her final acts before leaving Number 11. The Labour Party Chancellor is widely expected to be replaced by Andy Burnham when he becomes Prime Minister, with reports suggesting Burnham fancies Birmingham MP Shabana Mahmood as the next Chancellor.
Details of the Expensive Car Supplement
The Expensive Car Supplement (ECS) applies to any vehicle with a list price exceeding £40,000. Drivers must pay £425 per year for five years after the second year of registration, totaling £2,125. According to automotive analysis firm Jato, approximately 926,000 new cars costing over £40,000 were registered last year, with the figure projected to reach 973,880 by the end of the year if current sales rates continue.
Criticism from Motoring Groups
Ian Taylor of the Alliance of British Drivers criticized the tax, telling The Sunday Times: “Ordinary families are being priced out. For most people the car is an essential more than it is a luxury. The government needs to rethink this tax.” The supplement is part of broader changes to vehicle taxation under Reeves.
Electric Vehicle Tax Introduced
Reeves has also announced a pay-per-mile tax for electric vehicles (eVED), set at 3p per mile, scheduled for introduction in 2028. This marks a shift from the previous exemption for EVs. A Treasury spokesman defended the measures, stating: “Revenue from motoring taxes helps fund the public services and infrastructure that we all rely on — and the expensive car supplement ensures those buying the most expensive vehicles make a fair contribution. We have already raised the threshold for new electric cars to £50,000 and are protecting motorists by extending the 5p cut to fuel duty, while taking a responsible approach to the public finances.”
Political Context
Reeves' exit is anticipated as Andy Burnham is set to become Prime Minister, with Shabana Mahmood tipped as her successor. The luxury car tax is one of Reeves' final policy moves, drawing sharp reactions from motoring organizations concerned about the financial burden on families.
