2billion wiped off second-hand car market as credit crunch hits low income earners

The market is forecast to plunge by £2billion under pressure from expensive mortgages, fuel and food.

Industry experts warned there may be even bigger falls later this year as looming car tax increases start to drive down prices.

Credit crunch: Second-hand car prices plummet as Brits tighten their belts

The potential impact on millions of motorists will renew pressure on Gordon Brown to rethink the car tax reforms.

Figures released by Sainsbury's Finance predicted £22.7billion would be spent on second-hand cars between February and August, compared to £24.8billion in the six months before that - a slide of eight per cent.

Mark Norman, an analyst with CAP Motor Research, said: 'The main reason at the moment is down to the general economic climate. People are wary of spending.

By 2010 a tax disc on a nine-year-old two-litre Fiat Marea saloon will be £430 - £100 more than its trade value.

'But towards the end of the year and the early part of next year, as new Vehicle Excise Duty bandings come on to the horizon, the process will be affected purely by VED. Certain cars will be virtually impossible to sell.

Credit crunch: Second-hand car prices plummet as Brits tighten their belts

'Our research has shown that the tax disc will become as important as insurance and service costs when people are deciding what car to buy.'

The Government claims the tax increases are an environmental measure because they will reduce the popularity of gas-guzzling cars.

But official figures have shown that the effect will be to double revenues to more than £4billion while cutting carbon dioxide emissions by less than one per cent.

Around 18million motorists will have to pay more to use their vehicles from next April under changes to VED.

Many family cars bought before March 2006 will see the cost of road tax more than double from £210 to £430.

Even smaller cars will have inflation-busting increases. Further rises are scheduled for 2010.

As a result, many drivers will find the annual tax they pay is more expensive than the car they run.

By 2010 a tax disc on a nine-year-old two-litre Fiat Marea saloon will be £430 - some £100 more than its trade value.