Some Commentators Have Suggested That So-Called 'Chelsea Tractors' Should Be Taxed Much Higher Than Other Vehicles.

The term Chelsea tractor refers to the large 4x4's which are used around the cities and towns, these vehicles are now more popular than ever. As stated by the BBC

"Last year some 187,000 were sold - compared with 80,000 a decade before - accounting for almost 8%, or one in every fifteen, of all cars sold." This shows a growing trend in the popularity of these types of vehicles, many people use them for the school run due to the safety aspect of the cars, many just like to show off their wealth and have the "big car".

The problem occurs when many people drive these vehicles around town and in the inner cities, as they cause congestion and produce more carbon dioxide than other cars. Many people believe that in these circumstances the "Chelsea tractor" should be taxed more than other vehicles due to their size and emissions factor. Many people agree but some do not see why they should pay more, the minority of so called "Chelsea tractors" are used in the country by people who use them for the purpose of their design and these people feel they would be being penalised for owning a working vehicle.

Many environmentalists believe that taxing these 'Chelsea tractors' higher will stop people from buying them, but the question comes where to tax these vehicles more, the suppliers or consumers. If suppliers are taxed this will increase the price of the cars at the same time driving some consumers away, inversely the substitutes 'smaller cars' would become more desirable. As Fig. 1 shows if a higher tax was put directly on the production of 4x4's the cost of production would increase, thus the supply line would shift to the right making a market equilibrium shift from what it previously was. The problem with this is that if the car manufacturers are taxed higher the consumer may just budget more as once purchased there are no other costs associated with the bigger vehicle. Obviously the extra cost will put a minority of consumers off of the prospect of buying the 4x4 even if the usage was for the designed purpose.

If tax was raised on the consumer of these large 4x4s (through road tax) then consumers may be put off due to more money flowing out each 6 months or year. Fig. 2 shows how demand would be affected by the higher tax introduced demand would fall, the substitute smaller cars demand would increase due to opportunity cost, the 4x4 would be sacrificed to enable the consumer to save money. Therefore the opposite would happen on the demand and supply curve for the substitute demand would increase and shift to the right. The consumer has more choice to decide which product to buy and the government have given serious thought to this dilemma and believe that a higher road tax is the best way to try a deter people driving these big 4x4s around towns as an 'everyday' vehicle. Some people buy the more expensive 4x4's to show off their wealth, and buy raising the tax this will up the running cost or price of the vehicle adding to the show of wealth. This could turn the vehicle into a giffen good.

Due to the decrease in demand if the tax is introduced the firm that mainly specialises in 4x4 manufacture, namely Landrover, will be hit hard by the decreased demand for the specialised vehicles. Firms like Suzuki, Porsche, BMW, and Ford who do not specialise in just the 4x4 production and produce other smaller more economic cars will lose the revenue from the sale of 4x4's but at the same time will pick up revenue by selling the substitute vehicles. Landrover is a British company and if they were declared 'bust' the economy would suffer, due to closure of the company jobs will be lost and more people will be out of work.

Other than the obvious arguments (being for or against the tax) there are many other arguments that surround the issue. There are many environmental issues surrounding 4x4's in general they produce more carbon dioxide than smaller cars, which contributes to the effects of global warming. If the market is looked at as a whole there are many cars which emit the same if not more than 'Chelsea tractors' as the BBC states:

"there are plenty of high-polluting cars that are not four-wheel drive."

But later targets the Landrover Range Rover with specific interest and states:

"The biggest Range Rover churns out 370g of CO2 per kilometre, more than double the average for British-owned cars in general, and far in excess of the 120g/km Greenpeace wants to see by 2008."

Another argument is about space in the