news & Things

Report Warns Tax Electric Cars Or Lose £35 Billion

07th Feb 2022

Motoring taxation needs reform or UK’s future road users will suffer

 

The UK is in danger of an under-resourced and congested future unless the government urgently reforms motoring taxation, says MPs on the transport committee.

A miles travelled and vehicle type road pricing system would allow the government to sustain the link between motoring taxation and road usage. In a new report, Road Pricing, the Committee warns it hasn’t seen an alternative to a road charging system based on technology which measures road use.

Two significant sources of Treasury revenue will experience a decline as a result of the 2030 ban on the sale of new petrol and diesel vehicles. As sales of electric vehicles increase, Treasury revenue from motoring taxation will decrease, as neither fuel duty nor vehicle excise duty are currently levied on electric vehicles. Policies to deliver net zero emissions by 2050 will also have a consequence of zero revenue for the Government from motoring taxation – unless there is a reform. The Committee urges the Government to act now to prevent a potential £35 billion loss to the Exchequer.

The Committee calls for the Government to consider the following to ensure the new charging mechanism:

  • entirely replaces fuel duty and vehicle excise duty rather than being added;
  • is revenue neutral with most motorists paying the same or less than they do currently;
  • considers the impact on vulnerable groups and those in the most rural areas;
  • does not undermine progress towards targets on increased active travel and public transport modal shift; and
  • ensures that any data capture is subject to rigorous governance and oversight and protects privacy.

 

The report signals a need for a shift to an alternative road charging mechanism, as it calls for drivers of electric vehicles to pay to use and maintain the roads they drive on, as is something petrol and diesel drivers currently do. However, in this shift, there must remain incentives for drivers to purchase vehicles with cleaner emissions.

The Treasury and the Department for Transport should join forces, as they’re the departments responsible for managing the public purse and congestion respectively, and so they should look together for solutions and recommendations for a new road charging mechanism by the end of 2022.

 

As Departments responsible for managing congestion and maintaining the public purse, the Treasury and Department for Transport should join forces to set up an arm’s length body to examine solutions and recommend a new road charging mechanism by the end of 2022.

 

“It’s time for an honest conversation on motoring taxes. The Government’s plans to reach net zero by 2050 are ambitious. Zero emission vehicles are part of that plan. However, the resulting loss of two major sources of motor taxation will leave a £35 billion black hole in finances unless the Government acts now – that’s four per cent of the entire tax-take. Only £7 billion of this goes back to the roads; schools and hospitals could be impacted if motorists don’t continue to pay. 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. 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.”

Huw Merriman MP, Chair of the Transport Committee

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