Chancellor announces new road fund

Road tax – or Vehicle Excise Duty to give it its proper title - will now be ring-fenced to pay for improving and maintaining Britain’s roads for the first time since the 1930s.

Chancellor George Osborne made the announcement in his summer Budget speech today, Wednesday, 8 July.

In his budget speech, the Chancellor said: ‘Every penny of VED paid by the population cars will now be used to improve the roads that people drive on.’

For the past 60 years, VED has been treated as a general taxation on car ownership. Currently, VED (along with road tax and things like corporation tax) ends up in the coffers of the Exchequer. Road building and maintenance is currently paid for by a mix of general and local taxation.

A report by the World Economic Forum in June said that Britain’s roads were of a similar quality to those in Namibia or Puerto Rico.

Last year, the Government announced it would find £15bn to upgrade roads and triple the level of spending on the network by the end of the decade.

Road tax was first applied to cars in 1920 when money raised was ring-fenced for road construction and paid directly into a special Road Fund

But the Road Fund was never fully spent and returned a surplus each year, which was used for other Government purposes. It was wound up in 1937.