MPs call for road pricing to plug £35 billion fiscal black hole
Mon, 07 Feb 2022
The Government should introduce road pricing to replace fuel duty and vehicle excise duty (VED) and plug the £35 billion ‘fiscal black hole’ created by the switch to electric vehicles (EVs), according to a new report by the Transport Select Committee.
The report recommends a pay-as-you-drive road pricing scheme, using telematics, and argues that drivers of EVs should pay to maintain and use the roads which they drive on, as is currently the case for petrol and diesel drivers.
Currently, fuel duty and VED raise £35 billion a year and the Committee warns that the ban on the sale of new petrol and diesel vehicles from 2030 will leave the Exchequer facing a potential "fiscal black hole" by 2040 as motorists switch to electric cars unless a new road tax system is introduced.
The new charging mechanism should be "revenue neutral with most motorists paying the same or less than they do currently", the Committee said.
The Committee also calls for the Government to ensure that the new charging scheme: 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.
Huw Merriman MP, chair of the Transport Committee, said that it was "time for an honest conversation on motoring taxes".
"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," he said.
"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."
Motorists support overhaul of tax system
Motorists overwhelmingly favour a wholesale overhaul of the system to make it fairer and easier to understand for all, according to a survey of 10,000 drivers by HonestJohn.co.uk's sister brand heycar.
One in five (19%) favour the introduction of a pay-per-mile system of road charging.
At the same time, over a quarter (28%) of drivers say they would like a flat-rate of vehicle tax introduced - resulting in petrol, diesel, EV and hybrid owners paying exactly the same.
An increase in fuel duty was supported by 16%, while road tolls emerged as the least popular option - favoured by just eight per cent.
"The Treasury needs to get moving on this sooner rather than later.” RAC head of roads policy Nicholas Lyes
Research by the RAC also found drivers broadly support the principle of ‘the more you drive, the more tax you should pay’, with nearly half (45 per cent) saying a ‘pay per mile’ system would be fairer than the current regime.
RAC head of roads policy Nicholas Lyes said: “Whatever any new taxation system looks like, the most important thing is that it’s simple and fair to drivers of both conventional and electric vehicles.
"Ministers should also consider ring fencing a sizable proportion of revenue for reinvestment into our road and transport network.
“The Treasury needs to get moving on this sooner rather than later.”
Next steps
The Transport Select Committee recommends that as the Treasury is responsible for taxation policy, including motoring taxation and the Department for Transport (DfT) is responsible for road connectivity, the two Government departments should work together to set out their preferred options for replacing fuel duty and vehicle excise duty and establish an arm’s-length body with an appointed individual to evaluate the potential merits of those options.
Merriman added: "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.”
A Government spokesperson said: “The Government has committed to ensuring that motoring tax revenues keep pace with the changes brought about by the switch to electric vehicles, whilst keeping the transition affordable for consumers.
“We will respond to the Committee’s recommendations in full in due course.”
Why is road pricing in the UK taking so long?
Traditionally, road pricing has been a ‘political hot potato’ - the 1997-2010 Labour Government looked at national road pricing but went off the idea due to the negative reaction from voters.
Although more recent surveys have had a more positive reaction from motorists, there are also concerns about privacy and security.
What are the alternatives to road pricing?
The Government could consider a tax on charging electric cars but there are challenges around the supply of electricity and identifying when a car is being charged.
This would require new infrastructure, which would have to be paid for, Mike Williams, director for business and international tax at HM Treasury, told the Transport Select Committee.
How will pay per mile road pricing work?
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