Policy: Implementation Costs & Time

Implementation Costs

Marginal evidence was found regarding specific costs to implement and operate the Vehicle Excise Duty. However, estimates have been made of foregone government revenue. It is important to note that this does not represent the actual administrative and other associated costs of implementing a vehicle tax. Wordsworth and Grubb (2002) estimate that the foregone revenue associated with reduced tax rates of VED and company car taxation for lower carbon emissions vehicles is approximately £100 million per year. This estimate is based on the assumption that in the UK the differential between the tax liable on low carbon investments as compared to the tax that would be paid on these investments without the tax differential provides a measure of the investment incentive (Wordsworth and Grubb, 2002).

The cost of enforcement and advertising can provide an approximation for related operational costs associated with the VED. Bourn (2007) indicates that advertising costs in the order of £5.4 million in 2006 - 2007 and £4.1 million in 2005 - 2006 were incurred to reduce evasion of VED. Despite these expenditures the effectiveness of advertising campaigns in reducing evasion has not been measured. Moreover, between 2006 and 2007 an additional £2.3 million on court cases and £900,000 on debt collection was spent to legally enforce the VED.

Implementation Time

Harmsen et al. (2003) indicate that a budget neutral CO₂ differentiation of an existing tax scheme can be implemented within a relatively short time, while it takes longer to make substantial changes to tax levels which would likely require gradual implementation over several years. Evidence from the UK indicates that the implementation period for a graduated VED was 6 years between 2002 and 2008 (Harmsen et al., 2003; AEA, 2007; EST, 2007). While in Sweden, the environmental vehicle excise duty was identified as a key measure as part of a wider climate change strategy in 2003 but was not implemented until 2006 indicating an implementation time of 3 years (Borup, 2007).