Motorists should ‘pay by the mile’ to cover future fuel tax shortfall, MPs recommend
With the shift to electric vehicles (EVs) set to result in a fuel tax shortfall, MPs are asking the Government to develop a national road pricing scheme as a matter of urgency.
In a report published this week, the House of Commons’ Transport Select Committee said it sees “no viable alternative” to a national road pricing scheme, under which motorists would pay for road development and maintenance using a different mechanism to the current approach, under which funding is raised through fuel duty and vehicle excise duty.
This is largely because of the shift to EVs. Pure EV drivers will, of course, pay no fuel duty as they will not need to buy fuel. Retailers will be banned from selling new petrol and diesel cars in 2030 and, in the meantime, EV sales are already beginning to pick up, with customers keen to avoid high fuel prices and to play their part in reducing air pollution and emissions. EVs accounted for more than 71% of vehicle registrations in the UK in January, according to the Society of Motor Manufacturers and Traders (SMMT).
The Select Committee’s report forecasts that the Treasury could lose roughly £28bn in revenues from fuel duty and £7bn from vehicle excise duty by 2030 if current tax frameworks are not reformed. By the early 2040s, all revenues from these schemes would be lost, it adds.
Committee chair Huw Merriman said: “This issue can’t be dodged. We have to change policy.
“New taxes, which rely on new technology, take years to introduce.”
Tackling traffic and encouraging EVs
In the report, the Committee recommends a new “revenue neutral” charge – meaning most motorists will pay the same or less in 2030 as they do currently. This would help to overcome the political difficulties of implementing road pricing; the only major political party to have consistently advocated for this change in recent years is the Green Party.
MPs on the Committee are recommending that the Treasury and the Department for Transport (DfT) jointly establish an “arms-length body” to draw up options for the new scheme by the end of the year. At least one of the options, the report states, should be a road pricing mechanism that uses telematic technology to charge drivers according to distance driven.
For drivers of EVs and petrol and diesel vehicles alike, the report argues, this move should help to reduce congestion and contribute to the Government’s plans to encourage more journeys to be taken using active and public transport.
The Government has repeatedly been accused of focusing too much on individual EV ownership and not enough on high-quality local public transport in its plans for meeting net-zero, with critics including the think tanks Policy Exchange, Green Alliance and the IPPR pointing to potential increases in traffic and congestion.
While EV drivers would be charged the same as ICE drivers under this ‘pay-per-mile’ approach, the Select Committee is emphasising the importance of maintaining robust schemes to support drivers with the upfront cost of EVs, which remain more costly than diesel and petrol models. The DfT made two rounds of cuts to its Plug-in Car Grant in 2021, in a move that attracted much criticism.
Without strong support for EV purchasing, the report argues, the DfT and Treasury will likely face criticism from EV drivers and accusations of failing to join up its policy approach to the net-zero transition. Transport is notably the UK’s highest emitting sector, making it a major hurdle in the transition.
Responding to the report, the RAC Foundation’s director Steve Gooding said: “Drivers choosing to go electric deserve to know what is coming next – particularly if the promise of cheap per-mile running costs is set to be undermined by a future tax change. If the Treasury is thinking it can leave this issue for another day but still recoup their losses from EVs, they risk a furious backlash.”
AA president Edmund King added: “Whilst our polls show many drivers accept the principle of ’pay as you go’, they don’t trust politicians to deliver a fair system.
“Hence we agree with the Committee that any new taxation proposals should be put forward by a body at arm’s length to the Government and any new scheme should be revenue neutral, and we believe the charges should be set independently.
“The committee also says any new system should totally replace fuel duty and VED whereas we believe a transition period would be required to still encourage the take-up of EVs.”
The Government now has two months to respond to the report.
In related news, trade body the Motorcycle Industry Association (MCIA) and public-private sustainable transport consultancy Zemo Partnership have this week published a roadmap for decarbonising the powered light vehicles (PLV) sector in line with policy requirements.
Motorcycles, quadricycles and mopeds are all covered in the plans, which cover recommendations for the private sector, public sector and government.
On the government level, the roadmap urges a review of the current grant and incentive schemes on offer to those looking to purchase low-emission PLVs, to include learnings from other vehicle categories. It also recommends that the DfT works with the industry on a public awareness campaign on zero-emission PLVs and better supports local authorities to include PLVs in their net-zero plans.
For the private sector, the plans state that businesses are ready to collaborate to develop a component and supply chain system for zero-emission two-wheelers and L7 cargo vehicles.
Transport Minister Trudy Harrison said she “fully welcomes” the roadmap.
“As we power up the green revolution, we are determined to find the right place for zero-emission PLVs within our transport network and believe they can offer an affordable, convenient and sustainable way to travel, while helping to cut congestion in our towns and cities,” Harrison said.
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