Fears that scrapping the tax disc would lead to higher rates of evasion appear to have been realised, with new government figures showing losses of £93m over the past 12 months.
The government lost almost £100 million in road-tax revenue in the year following the abolition of the tax disc, official figures have revealed.
In the 12 months from March 2015, DVLA revenues from vehicle excise duty (VED) fell from £6.023 billion to £5.93 billion.
The requirement for all vehicles to display a paper tax disc was scrapped in October 2014.
In justifying the change, the government said that by moving the VED system entirely online, the DVLA would be able to save up to £10 million a year in administration costs.
At the time, many motoring organisations warned that, as owners no longer had to display evidence that they were driving taxed vehicles, the rate of tax evasion would increase.
The new figures appear to confirm these fears.
A Department for Transport survey carried out in the middle of 2015 found that around 1.5% of all vehicles on the road were untaxed.
This was a significantly higher rate than the 0.6% identified in 2013.
As a result, DfT officials projected that VED revenues were likely to fall by £80 million over the course of last year.
However, the £93 million actual loss recorded in the latest DVLA Annual Report & Accounts suggests that this prediction was overly optimistic.
Figures obtained from the DVLA earlier this year under the Freedom of Information Act showed that VED revenues fell by more than £220 million in the six-month period following the scrapping of the tax disc.
Spreading the cost
However, a large proportion of these losses were a result of allowing drivers to spread the cost of road tax out over a full year.
Since October 2014, motorists have been able to pay VED monthly rather than as an upfront annual lump sum or every six months as was previously the case.
A DVLA spokeswoman said: “We have introduced direct debit to help customers spread the cost of paying for their tax disc, and more than 10 million people have taken advantage of this, so there is a lag in when we receive the money.
“In addition, there are more clean cars on the road paying lower tax.”
Rule change confusion
A change in what happens to VED when cars are sold is also thought to be to blame for some vehicles going untaxed.
Before October 2014, when a vehicle was sold, the new owner got the benefit of any remaining tax.
Now, however, buyers must tax their new cars themselves before they take them on the road, while sellers can apply for a refund of any unused months’ VED.