A recent report from the Transport Committee has warned that urgent action is needed to consider how the tax take from car tax and fuel duty can be replaced once motorists switch to hybrid and electric vehicles.
What’s the problem?
Vehicle excise duty, or car tax, currently raises around £7 billion each year which goes straight to the National Roads fund, while fuel duty adds around £28 billion annually to the general spending pot.
To put that into context, this £35 billion represents about 4% of the total tax take in the UK and is the equivalent of adding 5% onto income tax.
Currently there is no car tax or fuel duty on electric vehicles. The government is already committed to phasing out the sale of petrol and diesel cars over the next decade and as more people switch to electric vehicles a budget black hole is looming as this £35 billion starts to quickly reduce.
What’s the alternative?
The Transport Committee report warns that action needs to be taken urgently to plan a way to replace the lost income in a way that is more-or-less neutral for the individual motorist so that they pay about the same, or less, than they are currently paying.
The report recommends that the Department of Transport and the Treasury should jointly establish an arms-length body to be tasked with recommending an alternative road charging mechanism by the end of 2022.
This should take into account the following:
- An annual tax-free travel or mileage allowance
- Support for individuals who live in remote and rural areas
- Support for vulnerable individuals, including those with mobility issues
- Making use of existing telematic technologies to charge drivers according to distance driven, vehicle type and the level of congestion
- Exploring the development of new technologies to enable costs to be varied according to the types of roads used, the time of day and the overall length of each journey
- New charging schemes must be able to work in conjunction with existing local and devolved charging schemes
- The new charging scheme must entirely replace the current car tax and fuel duty charges and not just add to them.
At the moment, the prospect of future tax-free motoring for electric vehicles is helping to encourage people to switch from petrol and diesel. Part of the challenge ahead is going to be finding a way to continue to encourage the increased uptake of electric vehicles whilst educating motorists as to the need for a replacement tax.
Road pricing is not new, having been initially considered back in 1960. Introducing new taxes is always difficult for any government and each time the prospect of introducing a form of pay-per-mile road pricing has been raised it has been extremely unpopular with the general public.
However, with the budget black hole fast approaching, and the alternatives being either a significant increase in income taxes or a reduction in funding, it is now likely to be inevitable.
