Road pay-per-mile road tax recommended as electric cars leave huge black hole in Treasury funding

With more and more electric cars on the roads, a drop in fuel duty tax revenues is causing a funding black hole. Will the Treasury replace fuel duty with a 'pay per mile' tax?
Image of an electric car charging

Road pay-per-mile road tax recommended as electric cars leave huge black hole in Treasury funding.

Fuel duty should be replaced with a 'pay per mile' tax to plug a £35 billion funding black hole left open by the switch to electric vehicles, the Transport Select Committee has recommended.

The Treasury has been urged to quickly seek an alternative funding model to fuel duty as the UK edges closer to the petrol and diesel car sales ban in 2030.

Currently electric vehicle owners are not charged fuel duty or car tax. The Treasury will lose an estimated £28bn from fuel duty and £7bn in vehicle tax when petrol and diesel motors are taken off the road. And the Chancellor of the Exchequer could be bringing in no money at all from existing taxes by 2040, the Daily Express reported.

In a report, the Transport Select Committee said: "A failure to replace existing motoring taxes with an alternative road charging mechanism will lead to either decreased investment in public services, including road maintenance, or increased Government borrowing.

"The Government must start an honest conversation with the public on the funding implications for road development and maintenance and for other essential public services of decreased revenue from vehicle excise duty and fuel duty."

Some cities have already adopted congestion charges to try and lower emissions and make air cleaner, but this "patchwork" of schemes should be scrapped for a national road pricing programme to stop confusion and unfair double taxing, the report said.

The problem should be seen as an opportunity to incentivise using public transport, walking and cycling, by making it cheaper for people who don't use their vehicles as much, MPs said, while also suggesting an annual allowance of free miles or giving more allowance to vulnerable groups or those in remote areas.

The report demanded pay per mile shouldn't cost more than the charges drivers already pay.

Transport Select Committee chairman Huw Merriman suggested technology should be used to calculate the cost of journeys based on the type of road, time and vehicle, suggesting a cheaper rate as quieter times of day. The cost could be calculated and compared with public transport options on an app, to give travellers the choice of where to spend their money.

Mr Merriman said: "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 percent 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.

"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."

James Blackman, CEO of By Miles, supported pay-per-mile but wanted the idea simplified. He said: “There wouldn’t need to be a mass technology roll-out, our simple proposal relies on taking the reading from the mileometer at MOT test time and charging based on the past year’s mileage.

“This simple switch could generate six and a half billion pounds overnight, and make the system so much fairer.

“In charging by-the-mile, drivers who understand the damaging effects of congestion and pollution will be rewarded for driving less, not punished.”

The report demands a plan is drawn up by the end of the year.

Erin Yurday

Erin Yurday is the Founder and Editor of NimbleFins. Prior to NimbleFins, she worked as an investment professional and as the finance expert in Stanford University's Graduate School of Business case writing team. Read more on LinkedIn.


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