Concerns are growing that the government could introduce pay-per-mile road charging to offset a loss of tax revenue when petrol and diesel cars are phased out.
Under the current system, the Treasury makes billions of pounds in fuel duty, which dictates the price of petrol and diesel at the pumps.
During the current 2023-24 financial year, the government is expected to receive £24.3 billion in fuel duty. This equates to 2.3% of all tax receipts and 0.9% of the total national income.
It is the equivalent of £867 per household - so once diesel and petrol cars are banned under the government’s green strategy, plans must be initiated to recover the loss.
Do you pay road tax on electric cars?
As well as the end of revenue from fuel duty, the Treasury is set to lose a further £11 billion per year in vehicle excise duty, which isn’t going to be charged on electric vehicles until April 2025.
The House of Commons Transport Committee is urging the Department for Transport and the Treasury to consider alternative proposals for maintaining tax revenues.
Electric car road tax is going to be charged on new zero-emission cars registered on, or after, 1st April 2025. Owners will be liable to pay the lowest rate of Vehicle Excise Duty of £10 a year for the first year. This rate applies to vehicles with CO2 emissions of 1 g/km to 50 g/km.
From their second year of registration onwards, owners will be moved on to the standard rate of £180 a year.
When are petrol and diesel vehicles being banned?
The government aims to ban the sale of new petrol and diesel vehicles in Britain by 2035. The original deadline of 2030 was changed by the Prime Minister during a surprise announcement this month.
Only 16% of the public feel the UK will be ready to move over to electric vehicles in the foreseeable future, according to a poll of 2,000 people. In addition, 43% of respondents believe Britain will NEVER be ready for 100% electric motoring.
The results of the poll are at odds with government plans to ban the sale of all new petrol and diesel cars and vans in 2035 and in a surprise twist, PM Rishi Sunak has had second thoughts on banning the production of new diesel and petrol vehicles in 2030.
In a net zero press conference on 20th September, broadcast live on TV, Sunak spoke of the sacrifices British people were already making due to the economic situation. He questioned whether it was fair to ask them to make more changes to their lifestyle.
He said the government risked losing the consent of the people if it forged ahead with its current net zero plans, as they would force “unacceptable costs” on British families. He wanted to “ease the burden” on ordinary people, while still meeting goals on reducing climate damage.
Sunak conceded that consumers should be empowered to make changes, rather than being forced to do things by the government that they couldn’t afford. He announced: “We’re going to ease the transition to electric vehicles. You’ll still be able to buy petrol and diesel vehicles until 2035. You will still be able to buy them second-hand after that.”
What are the criticisms of electric vehicles?
Aside from a loss of revenue to the Treasury, motorists claim there aren’t enough EV charging stations across the UK. They have also criticised the higher costs of buying an electric vehicle, compared with petrol or diesel.
Critics of the change claim once new fuel-driven vehicles are no longer in production, this will lead to more motorists buying second-hand petrol and diesel cars.
A survey of more than 11,000 car owners in June this year, carried out jointly by the AA and Electrifying.com, revealed only 16% of respondents supported the changes. A massive 87% of respondents said EVs were “too expensive to purchase”. This means consumer confidence in the switch-over is falling, as only 81% of people had this view two years ago.
Only 9% of motorists said their next car would be electric. Two-thirds of respondents said the massive rises in electricity prices had deterred them from buying an EV due to having to charge it at home. In addition, motorists feel the public EV charging system is inadequate. Statistics show that in March 2023, there were 40.8 million licensed vehicles on UK roads.
In August 2023, there were just 48,450 public electric vehicle charging points across the UK. Although this was a 42% increase since August 2022, 70% of car owners felt the charging infrastructure was unreliable. In March 2021, only 56% of motorists complained of an inadequate charging system.
What is the pay-per-mile system?
Drivers who are already struggling due to the cost-of-living crisis fear any new road taxes will cost them more than the current system of vehicle excise duty. MPs on the cross-party Commons transport select committee have been looking into the possibility of pay-per-mile road charges in future.
The Office for Budget Responsibility has calculated that by 2026-27, fuel duty receipts will be £1.4 billion less than they are at present. The Commons transport committee has expressed concerns about the decline in the £35 billion revenue annually that is generated by fuel duty and vehicle excise duty.
Stressing the “urgent situation”, the committee proposed replacing both duties with a new road pricing system, using telematic technology to charge drivers based on how far they drive.
When could pay-per-mile road charging be implemented?
There’s no definitive answer at present about when or if pay-per-mile road charges will be introduced. In fact, in response to a query from Autocar magazine, a transport committee spokesman played down the idea. While they were making sure motoring tax revenue kept pace with the change to electric vehicles, he said there were currently “no plans to introduce road pricing”.
However, the idea won’t go away: in May, the Centre for Policy Studies’ think tank published a document called The Future of Driving, which suggested a pay-as-you-drive scheme for zero-emission vehicles. Owners would be charged a flat rate per mile driven - but this would still be “significantly less” than petrol and diesel car drivers would pay in vehicle excise duty.
Everyone would have a certain number of “tax-free” miles per year, but the allocation would be higher for people living in remote areas with few transport alternatives, where a car was essential.
The report suggested this new type of charging system would eventually replace vehicle excise duty and fuel duty as the number of zero-emission vehicles on the roads increased. The theory is that drivers with older cars will still be charged more, as they will still be paying road and fuel tax.
The government would police the system and calculate what each motorist owed by gathering mileage. Motorists would be required to submit their mileage manually or via an on-board device.
Critics of the scheme have suggested drivers could end up paying considerably more than they do now in vehicle excise tax - particularly if they have a long commute to work, or drive for a living.
Motorists may become increasingly reliant on sat nav systems to guide them on the shortest routes to their destination, should the pay-per-mile charge be introduced.
The RAC has questioned whether the system would be viable, citing the “many unanswered questions” relating to the idea. While the motoring organisation said it seemed a reasonable solution in theory, there were negatives - such as how much it would cost to install cameras to monitor every road across the UK.
Many existing cameras, particularly in London, are vandalised, so the cost of replacing them would be high.
The motoring think tank, the RAC Foundation, warned there would be a temptation to create an “over-complex system” that would be costly to operate.
