Owning and driving a car has never been more expensive - and it will cost even more next year. But buy the right model and you could save thousands on tax, petrol and insurance.

The message to drivers is increasingly clear - buy a car that emits low amounts of carbon dioxide and you will save on vehicle excise duty (VED) and running costs. With the price of petrol now averaging up to 119.5p a litre, and the Government determined to hit “dirty” drivers with increasingly high taxes, perhaps the time has come to trade in your car for something that is cheaper to buy, run and insure - and is better for the environment.

New VED bands will be introduced next April to ensure that the most polluting cars pay more tax. While cars produced before 2001 will not be affected by the changes, campaigners say that many newer family cars will be hit by much higher tax bills. For example, the owner of a Citroën C4 Picasso bought after 2001 paid £210 VED this year, but faces bills next year of £300, and £310 in 2010.

Ian Crowder, at AA Insurance, says: “The new bands will undoubtedly make VED more complicated and many drivers may be surprised at how much more tax they will have to pay. If you want to drive down the costs of motoring, your first priority will be to find the greenest car possible.”

Currently there are seven car tax bands, A to G. Owners of cars in Band A do not pay anything, while those in Band G pay £400 a year. From April next year, there will be 13 bands (A to M), with owners of cars in Band M paying £440 in 2009, and £455 in 2010. New cars bought in 2010 will also be subject to more tax for the first year - the so-called showroom tax. So a car in Band M, bought in 2010, has £950 tax in the first year, and £455 thereafter.

Campaigners say that it is unfair to apply the higher taxes to cars that have already been bought. Edmund King, of the AA, the breakdown service provider, says: “Drivers who bought cars between 2001 and 2006, when the tax system did not penalise those with higher emissions, now face an increase of up to £295 a year.

“Considering that when they bought their car they did not realise it would be taxed at a higher rate, we think this is highly unfair. Not only that, but the tax increase means the car will really depreciate in value.”

To make the issue of road tax even more complicated, the same brand of car can emit different levels of CO2, depending on the model and configuration. For example, in 2009-10, the “cleanest” Ford Focus, a 1.6 Duratorq TDCi five-door saloon, will be in Band C, at £30, but the “dirtiest”, a 2.5 Duratec three/five-door saloon, is in Band K, at £300.

The 1.6 Duratorq TDCi is also much cheaper to run. Fuel for 12,000 miles would cost £938, while filling up the 2.5 Duratec for the same distance would cost £1,902. You could save £1,234 a year in tax and petrol by opting for the “cleanest” Focus.

Similarly, government figures show that shifting from the dirtiest to cleanest Citroën C5 will save £190 in VED and £868 in fuel costs, while switching from the dirtiest to cleanest BMW 3 Series will save £350 in VED, plus £1,860 in fuel costs.

The colour-coded fuel efficiency rating label that all showroom cars must display will tell you which VED band it falls into, and how much it costs to run for 12,000 miles.

If you are not buying in a showroom, go to www.vcacarfueldata.org.uk, the site of the Vehicle Certification Agency, to find out the VED and running costs of a specific model. For a useful list of the most efficient cars, go to the government site, www.dft.gov.uk/actonco2.

You also need to consider how much a new car will cost to insure. While this largely depends on who drives it, some models are cheaper to insure than others. Malcolm Tarling, of the Association of British Insurers, says that it groups cars from 1 (the cheapest to insure) to 50. A car's grouping depends on factors such as repair costs, standard of finish and in-built security. For example, Group 1 includes the Mini City, Citroën CV6 and Fiat Panda, while Group 50 includes the BMW 645 Convertible and Audi A6 Quattro.

For further information on the insurance groups of a particular car, go to www.thatcham.org, the site of the Motor Insurance Repair Research Centre.

Case Study: Fuel cost of daily commute, 10p

More than a third of motorcycle owners buy their two-wheeled chariots because it is cheaper than running a car, writes Rebecca O'Connor. After a week of scootering around London, I can confirm that it most definitely is.

Riding to work every day and back barely registered on the fuel gauge of my borrowed Vespa Piaggio LX. Not only did the scooter cut the 1.8 mile journey to 10 minutes - from the usual half-hour walk or 25-minute bus ride - I estimated that it cost me less than 10p a time.

The 8.6 litre tank of a Piaggio LX costs £10.28 to fill up at today's rate of 119.5p a litre, so an average commute of 8.5 miles a day on a 125cc bike costs just £2.02 a week. Riding a scooter in London has the added advantages of no congestion charge and no parking costs, while road tax is just £15 a year. Adding the fuel to the road tax gives a yearly total running cost, based on 48 weeks, of £111.96.

But you do have to buy your scooter - a new LX 125cc costs £2,599 - and insurance. Comprehensive insurance for me, a new rider living in East London, came in at a whopping minimum of £750, although the cheapest cover starts at £249 for third party, fire and theft, while some insurers, such as the Post Office, offer discounts.