Six-month car tax discs under threat in plan to cut licence running costs

The six month road fund licence disc, bought by millions of motorists each year, could be abolished in a cost-saving scheme at present being considered by ministers.

The plan also suggests that shops or supermarkets, rather than post offices, could be used to sell the licence discs, putting at risk the future of many smaller post offices. It also proposes the abolition of licence refunds to people who sell their cars.

The proposals are contained in a document drawn up by senior Department of Transport officials who also suggest that the method of paying for the licence through buying special stamps could also be abolished.

The confidential paper, obtained by the Labour MP for Withington, Keith Bradley, sets out various options for reducing the costs of the Driver and Vehicle Licensing Agency, (DVLA) which administers both driver and vehicle licences, and which is currently heading to overspend next year's pounds 172.5m budget by pounds 7.6m.

The report suggests that pounds 2.7m each year could be saved by dropping the six-month road fund licence disc and the pre-payment stamps scheme, and reducing the scope for refunds.

Even though the six-month disc is more expensive for motorists (working out at pounds 159 per year rather than pounds 145) and therefore brings in more revenue, it costs much more to administer and its abolition would therefore lead to substantial savings.

The paper warns: "Neither of these steps [abolishing six-month discs and stamps] would be welcome to the public; the abolition of stamps would have a small negative effect on Post Office Counters Ltd income, the refund change needs a Finance Bill amendment and there might be some extra evasion of duty at the margin."

However it concludes: "If ministers were prepared to tolerate these points, another pounds 2.7m per annum of running cost savings would be possible."

The contract with the Post Office costs the DVLA pounds 64m a year, and a previous survey suggested that 30 per cent of this could be saved if some of the work was given to shops, but a previous attempt to implement the scheme was halted by ministers who were concerned at its unpopularity.

The paper also considers whether the work of the 40 local DVLA offices, which employ 1,320 staff, could be contracted out. This would initially cost an estimated pounds 3.3m because of redundancies but would lead to annual savings of pounds 4.5m.

Mr Bradley said: "I am very concerned that cost-cutting means the service to motorists will be reduced. Poorer motorists will find it very difficult to keep their vehicles on the road legally." He added that taking business away from post offices could lead to further closures of smaller ones.

A Department of Transport spokesman said last night: "The review is an internal report which will be considered by ministers in the near future. It will not be published."