BVRLA chief executive, Gerry Keaney.

A new report from Oxford Economics, commissioned by the British Vehicle Rental and Leasing Association (BVRLA), has found that the VED hike will hit the car rental industry with a 400% tax rise while also removing the ability to claim a refund for any unused first-year tax from 1 April 2017.

The report found the average duty paid for rental cars, which have a typical fleet life of nine months, will rise from £36 in 2016 to £170 from April 2017.

As a result, the rental sector’s overall first-year VED bill will rise 400%, from £11m in 2016 to £55m in 2017, with the lack of refund responsible for £14m of this.

In the BVRLA’s 2017 Spring Budget submission, chief executive Gerry Keaney said continuing with the changes could see rental companies extend replacement cycles to reduce the cost impact of the new VED regime. As a result, new car purchases by the sector could drop by 24,800 in 2017 from the current level of around 324,000 cars each year, impacting the new and used car markets but also having a knock-on effect on the environment.

“Rental companies account for a substantial proportion of new, low-emission car purchases in the UK, and if these changes go through, the Government will seriously damage its green agenda and air quality goals,” said Keaney.

Keaney added that the tax hike is likely to lead to price rises for rental customers at a time when the UK government is trying to encourage people out of reliance on the motor car.

He also highlighted the significant potential VAT loss resulting from fewer cars being purchased and thus disposed of in 2017. Using an average rental car disposal price of £17,800, the BVRLA has calculated that the Exchequer could be hit by a VAT shortfall of almost £74m this year.