The government confirmed a new low-emission tax band for 2008/09.

The new 10% tax band will be for cars with emissions up to 120g/km.

Hybrids and bi-fuel cars would receive no further discount.

Diesel cars with emissions below 120g/km would still receive a 3% surcharge – ie tax band 13%.

Fully electric cars would retain their special 9% tax rating.

The Pre-Budget Report also confirmed that the threshold rate for the 15% tax rate would also be lowered – from 140g/km to 135g/km.

Car tax savings on a 10% qualifying car

• Car Honda Civic Hybrid ES
• Emissions 109g/km
• Economy 61.4mpg
• Tax band 07/08 12%
• Tax band 08/09 10%
• Tax saving £72 (22%) / £130 (40%)

Source: HSBC DriverQuote

In addition, Budget 2007 would set out the company car tax thresholds for 2009/10.

Chancellor Brown said the government would also consider incentivising the take up of flex-fuel vehicles that can run on high blend bioethanol – such as the Ford Focus Flexi-Fuel and Saab 9-5 BioPower. Such cars are said to be CO2 neutral.

Driver tax savings from 2008/09 tax year