From 2010 cars that emit less than 130 g/km of carbon dioxide will pay no car tax at all in the first year but a higher first year rate will be introduced on the most polluting vehicles.

New tax bands come into effect in 2009 that will also force owners of high-polluting vehicles to pay more road tax.

- New first year “showroom tax” - VED re-written in 2009 - 2p fuel duty delayed to October - Funding for road pricing schemes

“I am proposing a major reform to Vehicle Excise Duty to encourage manufacturers to produce cleaner cars and by introducing new bands, there will be an incentive to encourage drivers to choose the least polluting car,” said Darling. “As a second stage for new cars, from April 2010 there will be a new first-year rate based on carbon dioxide emissions of the car. “The changes will provide a real incentive to manufacturers and motorists.” In a further blow to the automotive industry, the anticipated 2p fuel duty rise was confirmed but it will not arrive until October. A further 1/2p increase was also announced by the chancellor, which will come into effect in 2010. Darling is also setting aside new funding to develop road pricing schemes.