If we all have a quick root around down the back of the couch we could probably gather up quite a large amount of loose change. It’s a safe bet we’d be a long way from the £35 billion the government is going to need to replace the income from fuel duty and road tax when we all switch to electricity in the coming years though.
As new petrol and diesel vehicles sales slowly decline between now and 2030, two significant sources of Treasury revenue are going to disappear too.
If you’re already driving an EV you’re costing the tax man money. You pay zero rate for your road tax, and if you’re not even using fuel the Treasury can’t get its 60% slice of that either. As it stands, every single one of us driving an EV is getting a massive tax break at the moment. And by 2030 when sales of all new cars will be electric that income is almost going to dry up entirely.
That £35 billion represents 4% of the entire tax-take, and who could afford to take a 4% pay cut right now…? And only £7 billion of this actually goes back to the roads so it’s also schools and hospitals that could be impacted as motorists start to pay less tax.
The Transport Select Committee has urged the Government to act now to replace that potential £35 billion loss - £28bn in fuel duty and £7bn in vehicle excise duty - to the Exchequer. The cross-party committee said it saw “no viable alternative” to road pricing and work should start immediately on creating a replacement for fuel duty.
A road pricing system, based on miles travelled and vehicle type, would help maintain the existing link between motoring taxation and road usage. Essentially that means drivers of electric vehicles will also pay to maintain and use the roads which they drive on, as is currently the case for petrol and diesel drivers. The trick is to find a way to do that without destroying the incentives for motorists to choose cleaner vehicles.
The Committee has stated that any new charging mechanism should follow certain guidelines. It should entirely replace fuel duty and vehicle excise duty rather than just being added on as a new tax and should be revenue neutral, so we all end up paying around the same as we do now. It must take vulnerable groups into account and not price people off the roads purely because they live in rural areas and rely on their cars more. At the same time, it shouldn’t undermine moves to increase public transport and offer new transport solutions.
Chair of the Transport Committee, Huw Merriman MP, said:
“We need to talk about road pricing. Innovative technology could deliver a national road-pricing scheme which prices up a journey based on the amount of road, and type of vehicle, used. Just like our current motoring taxes but, by using price as a lever, we can offer better prices at less congested times and have technology compare these directly to public transport alternatives. By offering choice, we can deliver for the driver and for the environment. Road pricing should not cost motorists more, overall, or undermine progress on active travel.
The report goes on to say:
“Work should begin without delay. The situation is urgent. New taxes, which rely on new technology, take years to introduce. A national scheme would avoid a confusing and potentially unfair and contradictory patchwork of local schemes but would be impossible to deliver if this patchwork becomes too vast. The countdown to net zero has begun. Net zero emissions should not mean zero tax revenue.”
It's been talked about – and rejected – on and off for years but it looks like the switch to EVs might be the trigger that brings on the paradigm shift.
Like it or not that tax revenue needs to be replaced. The only real way to do that is to introduce road pricing in place of fuel duty. How that happens exactly remains to be seen. It could be by telematic black boxes or by a camera based system. But at some point in the next few years we’ll all have to get used to a major change in the way we pay to use our roads.
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