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The Emergency Budget and how it affects motorists

The Emergency Budget pushed up the cost of buying and running a car, but fuel duty and car tax remain untouched. The big headline is the rise in VAT to 20 per cent from its current 17.5 per cent which will hit new car buyers hard when it's introduced in January 2011.

EXCLUSIVE: Read Honest John's reaction to the Budget.

The 2.5 per cent rise means an average family car costing £20,000 will increase in price by a further £400 from the start of next year - the increase will be introduced on January 4. The increased in VAT will also hit the price of running and servicing as the increased rate will also be charged on fuel, labour and parts.

>> VAT rise - the full story

The only consolation for drivers in the Chancellor - George Osborne's - first Budget speech, was that fuel duty will remain fixed at the level set by previous Chancellor Alistair Darling. However, this still means a 1p rise in fuel prices in October 2010 and a further 0.76p rise on 1 January 2011, just three days before the increased VAT rate will come into force. The Government will also 'examine the options' for the design of a fair fuel stabiliser.

This would link the price of fuel paid at the pumps to the cost of oil on the world market. In doing this, the Government would make the price drivers pay for fuel more transparent and force it to ride and fall as oil prices fluctuate. It's something that many experts are calling for.

"We estimate that taking all the increases into account, motorists will, by January 2011, be paying 4.63p a litre more for petrol and 4.68p a litre more for diesel than they are now," said the AA's president Edmund King. "If the cost of fuel continues to rise then the Government should look again at their promise for a fair fuel price stabiliser."

In terms of car tax (or VED - vehicle excise duty as it's also known), there are no changes to the current system with the bands and rates remaining the same. This is good news for those choosing cleaner cars with low CO2 emissions but bad news for those after less efficient vehicles.

>> Find out how much your new car costs to tax, by clicking here

The new showroom tax, introduced in April will also remain in place.

>> Showroom tax explained

Drivers will also be faced with increased insurance premiums as the Insurance Premium Tax rises by 1% from 5% to 6%. This will affect all insurance policies.

>> Insurance explained: our full guide

There's good news for company car drivers with changes designed to encourage cleaner and greener car choices. From April 2011, the threshold for the 15 per cent rate of tax will be reduced by 5g/km of CO2 - which means it will apply to cleaner cars emitting between 121g/km and 129g/km of CO2, making these cars cheaper to run.

>> Company car tax reforms - the full story

The Chancellor did not reveal how the Government plans to cut £683m from the Department for Transport's budget. That is set to come from the scrapping of road improvement schemes.

The full Budget report will published later.


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