If you drive a diesel car the next Budget could cost you a lot of money

A crane processes a car at Vtormet scrappage plant outside Moscow, January 30, 2013. Scrap dealer Yuri Vorontsov hopes business at his Vtormet yard outside Moscow will pick up soon thanks to a new recycling fee on car imports. But he is still waiting to hear how the levy will help him compete with fly-by-night operators who buy up cars, strip them for parts and dump the hulks illegally. Picture taken January 30, 2013.

REUTERS/Tatyana Makeyeva

Environmentalists have long raged against the pollution caused by cars with diesel engines, and now a prominent think-tank has taken their side.

Policy Exchange, an influential educational charity, has proposed an £800 ($1144) increase on vehicle excise duty (VED) for new diesel cars.

The tax rise is aimed at discouraging new car buyers from taking the diesel option, and could be part of UK Chancellor George Osborne's Budget on March 16th.

The move would also raise an additional £500 million a year which could be used to fund a new diesel scrappage scheme.

Richard Howard, the head of the policy exchange, said that many UK cities faced an "air pollution crisis" which is unhealthy for residents, and illegal.

"If we are to clean up air pollution, then Government needs to recognise that diesel is the primary cause of the problem, and to promote a shift to alternatives. This needs to be done in a way which does not unduly penalise existing diesel drivers, who bought their vehicle in good faith, and gives motorists sufficient time to respond. The government should look to increase taxes on new diesel cars and offer scrappage grants to take old polluting diesels off the road," he said.

Howard added that the tax should not be levied on existing diesel car drivers who had bought their vehicles "in good faith."

Taxing away pollution seems to be a strategy George Osborne is fully on board with. Last year he removed tax exemptions for low-emission cars, meaning that from 2017 all cars will incur £140 in road tax, unless they're electric.

Nitrogen dioxide from diesel cars is often blamed for thousands of UK deaths every year. German car maker Volkswagen were recently embroiled in a scandal earlier this year when their diesel cars were found to give misleading stats on their emissions.

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