'The Law of Unintended Consequences' says that for every action we take to achieve a particular result there will always be another fall-out result that we did not intend. It might well be that the Chancellor's latest budget could have unintended consequences for the new and used car markets and the future shape of the car parc.

One example of unintended consequences was 'The Supply of New Cars Order 2000', which planned to create a level playing field for private and fleet buyers of new cars. However used car residual values over-reacted and the 'cost to change' actually increased so making all new car buyers worse off. Another example is how, between 1921 and 1948, Vehicle Excise Duty (VED) was based on RAC Horsepower. This encouraged inefficient engines with long strokes and held back technical progress.

A similar litany of unintended consequences could result from Chancellor Darling's recent budget with its selective increases in VED and increases in 'showroom tax' to be introduced in 2010/2011. In particular the Chancellor has set a VED trap for cars emitting more than 226g of CO2 per km, registered after 1st March 2001 but before 23rd March 2006. The Chancellor will also increase duty on fuel in October on top of the 20% increase in fuel prices over the past twelve months.

Another measure in the budget, which has received far less publicity, will be a write-down allowance of only 10% from next year for company cars emitting more than 160g/km of CO2 and 20% for emissions below 160g/km. The rules disallowing a proportion of car lease rental payments will also be reformed in line with the new capital allowances rules.

The budget changes over the next two years will probably affect the new and used car markets much sooner because business cars make up nearly 80% of new car purchases. Although DVLA figures say 50%, an investigation by the International Car Distribution Programme (ICDP) suggested that non-private new car sales should include company fleets of all sizes, Motability, public sector purchases, rental companies, franchised dealers, and vehicle manufacturers and their employee purchase schemes. On this basis ICDP calculated that the new car market in 2004 was split 22%/78% between private and non-private.

Clearly the Chancellor's measures will affect business users more than most and thus the new car market. And the effects might come to pass much sooner than the proposed dates of introduction because leasing and contract hire payments are sensitive to residual values, which are calculated far in advance when agreements commence. It would also be surprising if the trade market for used cars did not react quickly to the budget measures and the present economic uncertainties by marking down prices - especially for the most affected cars.

The unintended consequences could be a dampening down of the new and used car markets, and a complete change in the future shape of the car parc - the latter Alastair Darling's RAC Horsepower legacy.

(This first appeared in Chris Oakham's April 2008 column in Auto Retail Bulletin. For a FREE trial copy of Auto Retail Bulletin go to www.auto-retail.com or e-mail: francis@auto-retail.com.)