If you keep the car but don't use it much, chances are you'll stop feeling guilty and start getting annoyed at the large fixed costs. My car has done about 4000 miles per year for the last 5 years, and that includes shopping, commuting on lazy days, a trip to Cornwall from near Liverpool, one to Westmoreland and a few to Wales. With that kind of mileage, I only get it serviced every other year (keeping an eye on the tyres and oil level etc myself). I'd be very happy if VED was reduced to a nominal fee and road pricing or fuel duty were used to make up the difference (I think that reducing fixed vehicle costs is key to getting people to consider other modes of transport).
If the car would only fetch 500 quid, I'd keep it for long distance journeys (a Mondeo is a nice car for motorway miles and big enough to go camping with bikes on a rack). Keep track of the mileage and feel smug when you do less than a hundred miles and only need to put in 20 quid's worth of fuel in a month. The main cost is probably going to be insurance, hopefully you've got no claims discount.
Then again, if you are happy without a car, sell it for £500 and avoid paying out another £600ish per year in VED, Insurance and servicing plus whatever on fuel.
