Chancellor George Osborne’s summer 2015 Budget statement will punish buyers of more expensive cars and take away the tax breaks currently available to buyers of low emission vehicles.

The new tax system for the first year of a car's life, proposed to kick in from 2017, has prompted immediate criticism by the Society of Motor Manufacturers and Traders (SMMT).

The new system will continue to be based on 13 bands for the first year of a car's life. Cars emitting between 1g/km and 50g/km of CO2 will be subject to a £10 VED cost, but those emitting more than 255g/km will attract a £2000 levy.

In the second year of a car’s life, ten of the 13 bands will disappear, leaving Zero Emission, Standard and Premium. ZE cars will be exempt form VED. Both Standard and Premium cars will pay £140 a year, but a Premium car (those that cost more than £40,000) will be required to pay an additional £310 on top for the next five years of its life. From year seven this extra payment will drop back to £140.

The changes only apply to cars registered on or after 1 April 2017; existing cars will continue to be on the present system.

The Chancellor claims that 95% of cars will be eligible for the £140 rate, compared to the current average of £166. He also announced that from 2020 all the money raised from Vehicle Excise Duty, or road tax, will go into a fund earmarked for improving the UK's roads.

A consultation is in process on the idea of extending the time allowed before the first MOT of a car's life from three years to four.

Mike Hawes, SMMT chief executive, said: "While we are pleased that zero-emission cars will, on the whole, remain exempt from VED, the new regime will disincentivise the take-up of low emission vehicles.

“New technologies such as plug-in hybrid, the fastest growing ultra low emission vehicle segment, will not benefit from long-term VED incentive, threatening the ability of the UK and the UK automotive sector to meet ever stricter CO2 targets.

"The introduction of a surcharge on premium cars also risks undermining growth in UK manufacturing and exports. British-built premium cars are in increasing demand at home and globally, and the industry helps to support almost 800,000 jobs in the UK.”

A Jaguar Land Rover spokesman said: "Jaguar Land Rover believes placing a tax on vehicles over £40,000 sends a very negative symbol to the UK's premium automotive industry. The UK should be proud of its premium car manufacturers, which support huge numbers of jobs and investment, not specifically penalise it."