In line with the "X amount miles pay the same tax as the person who does 25*X amount of miles" argument, if you drive ~4000 and Jo down the road drives 25000 they
does pay more tax. They'll have a much higher fuel usage (fuel duty and VAT) and higher maintainance costs (VAT on parts and labour). VED pretty much covers the DVLA and the highways agency and not alot else these days. Whilst the local councils do get money from central government, they are free to spend it on what they like, i.e. they're not told 'this is road tax, it must be spent on road maintainance'.
To expand on the point of VED exemption for classics:
Only classics built before 1st Jan 1973 are exempt from VED. In the case of chassised cars (e.g. the Triumph Spitfire, 'series' Land Rovers) this is based on the date the chassis was assembled. With monocoque/unibody cars (e.g. the original Mini) this is based on the date the shell came off the line. Tax exemption for classics only came in in 1992, the 25 year rolling point was scraped by Labour in 1997 (hence the 31/12/1972 cut off).
The number of cars this includes is only a few percent of all those on the road (IIRC ~2% of cars on the road qualify for VED exemption on heritage grounds). The treasury only 'misses' out on a few million a year, in contrast as stated in the news article the new VED rates will net them over £1bn by 2010.
Its worth noting that the tax for
any car between Jan 93 and March 2001 is based on engine size and fuel type. CO2 levels weren't, routinly, put on the registration documents before then. The Government don't want to pay for emissions tests and new log books for all the cars still on the road in this time frame, and know it would be political suicide to make the electorate to pay out of their own pocket.
But any well maintained classic will pump out the same CO2 as a non-cat'ed car of the same engine size. Properly tuned, they should even be less polluting than an early cat'ed car during the cat's 'warm-up' period. Catalytic converters became a legal recuirement for cars sold in the EU in 1993 - interestingly if you're a follower of the 15 year rule, you'd see pre-93 cars as classics in their own right and the first statement of this paragraph would be void
Another argument often made by tax exempt classics drivers is that they're higher maintainance and therefore pay more VAT on spares than a more modern car.
To come back to the mileage argument, many classics are fair weather only cars. They do tend to put down more miles when they're taken out but then yearly mileage is often restricted to a few thousand for insurance purposes.