Motorists who opt for environmentally friendly cars will be rewarded with lower road tax in the upcoming Budget, while gas-guzzlers will be punished.

In an effort to go with the green flow and give his first Budget an environmentally-friendly vibe, the Chancellor, Alistair Darling will offer incentives for moving away from vehicles which leave a large carbon footprint and towards greener alternatives.

Ministers have said that they expect the Chancellor to increase vehicle excise duty on high-emission vehicles and lower it for those who drive relatively eco-friendly cars.

Company cars are also thought to be put under the microscope; the current scheme – which sees drivers of modest-sized cars being charged 15 per cent of the car’s value in tax compared to a gas-guzzling driver which is charged 35 per cent – could be changed so that the green drivers pay less and the high-impact ones pay more.

Mileage might also be shaken up, with drivers being paid 60p per green mile, or just 20p per high-emission mile.

Those who decide to drive a car with a lower environmental impact will welcome the financial rewards in addition to those for the environment, but perhaps the new rules will also encourage the 1.2 million drivers which Direct Line found will still go for a 4×4 over more fuel efficient cars in 2008 to rethink their environmental impact.

Not only does a green car limit an individual’s impact on the climate, but choosing a more fuel efficient car can also “provide financial benefits”, according to Tony Chilcott, Head of Car Insurance at Direct Line.

Less powerful cars enable their owners to save money on the rising price of fuel and also by putting them in a lower car insurance band.

© Fair Investment Company Ltd