2010’s Best Selling Cars - How Has The VAT Increase Affected Ownership Costs

One obvious place where the VAT increase is noticeable is with car prices. The 2.5 percent increase may seem minimal with most small and regular purchases, however, this added amount of VAT has  a substantial effect on how much you’re likely to pay for a car in relation to ownership costs.

As at November 2010, the average annual cost of owning and running a new car had jumped by 6.3% in the previous 12 months, according to RAC’s annual Cost of Motoring (CoM) Index. The 346 pounds increase, which is twice the rate of inflation, took average costs up to 5,869 pounds from 5,523 pounds in 2009. This equates to 112.87 pounds per week or 48.91p per mile. The Index addresses the costs of owning and running a new car and includes fuel, insurance, maintenance, road tax, breakdown cover, depreciation and finance.

To show just how much of an effect the VAT increase can have on the cost of car ownership, both for car loans and cash purchases we have taken the following information from Auto Trader, who provide an annual list of the UK’s best selling cars, along with their ownership costs in December 2010 and what they cost today due to the VAT increase.

1. BMW 3 Series – costing 26,300 pounds to buy brand new today (or from just 281 pounds excluding VAT if you were to take advantage of one of the many car finance options, such as personal car loans), the average cost of fuel, insurance and tax amounts to 1,695 pounds, 1,299 pounds and 90 pounds respectively, bringing the total cost of ownership to 29,384 pounds.

In just a matter of weeks, and before the increase in fuel prices, drivers were paying an extra 625 pounds overall – 560 pounds on the cost of the car, 36 pounds for petrol, 28 pounds on insurance and an extra two pounds on tax.

2. Volkswagen Golf – the car that’s getting hit the hardest by the VAT increase in this list, ownership costs for a Volkswagen Golf today stand at 36,426 pounds, made up of 3,223 pounds in petrol, 1,383 pounds in insurance and 425 pounds in tax (plus the initial cost of 31,395 pounds).

Due to the increase on 4 January 2011, however, you have to pay almost 800 pounds more, which includes 668 pounds on the cost of the Golf and nearly 70 pounds extra a year on petrol.

3. Vauxhall Astra – one of the most popular cars currently on the market, due to its functionality as both a young person’s car and a great family car, Astra’s currently retail at 18,205 pounds on the road, from new.  Throw in around 2,400 pounds in petrol, 1,100 in insurance and 125 in car tax and your total ownership costs amount to just over 22,300 pounds.

And whilst the increase in the new year of 440 pounds relates largely to the cost of the car itself – you have to pay over 350 pounds more for an Astra in January 2011 than in December 2010 – the extra 100 pounds for petrol, insurance and tax is a big hike.