The government is being urged to start an “honest conversation” with the public about how to replace the £35 billion currently raised from vehicle excise duty and fuel duty, with road charging identified as one of the leading options. The tax-take from car owners is set to dwindle to zero over the next 20 years as motorists opt for electric vehicles (EVs) and petrol and diesel cars are phased out as part of the drive to net zero. A report on road pricing from the Transport Select Committee points out that 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.
MPs said that to promote fairness and public acceptance, any alternative road charging mechanism must (a) entirely replace fuel duty and vehicle excise duty rather than being added alongside those taxes; and (b) be revenue neutral with most motorists paying the same or less than they do currently.
The committee cautioned were the current tax system to remain unchanged across the transition period, tax receipts from most fossil fuel related activity will decline towards zero during the first 20 years of the transition, leaving receipts lower in the 2040s by up to 1.5% of GDP.
Electric vehicles
MPs heard that sales of EVs are increasing at a faster rate than previously predicted, meaning that the decline in the motoring tax take could accelerate. EVs are currently exempt from the duties, in recognition of the higher costs of purchasing the vehicle. However, MPs were warned that if EV drivers become accustomed to no-tax motoring, it may become socially and politically difficult for the Exchequer to extract motoring taxes from them in future.
The report stated: “In signalling a shift to any alternative road charging mechanism, the government must make it clear to motorists who purchase electric vehicles that they will be required to pay for road usage, as is currently the case for petrol and diesel vehicles. It must ensure that any alternative road charging mechanism incentivises motorists to purchase vehicles with cleaner emissions while contributing tax revenues to support the maintenance of the road network.”
Road pricing
The report identified a road pricing system as one of the more likely options in future, on the grounds the advantages include better connectivity for tradespeople, reduced congestion, improved road maintenance and enhanced environmental outcomes. However, it emphasised this should be a national system, as creating a patchwork of local pricing systems would lead to confusion and potentially double taxation.
It said the government must examine how an alternative road pricing mechanism can use price as a lever for change while subjecting motorists to fair levels of taxation. To that end, it could offer concessions in the interests of societal fairness, such as providing an annual allowance of free travel miles or gearing the system to support vulnerable groups, such as those with mobility issues, and people who reside in the most remote areas.
If motoring taxation is linked to road usage, then committee stated it has not seen a viable alternative to a road pricing system based on telematics, and said that the technology could potentially be used to charge drivers according to distance driven, factoring in vehicle type and congestion. It also wants the government to assess the potential effect of telematic technology on changing drivers’ behaviour and delivering its wider policies on air quality, congestion, public transport and public health.
MPs acknowledged there is strong public objection to road pricing and recommended that the Department for Transport and the Treasury jointly establish an arm’s-length body with an appointed individual to evaluate its preferred options to replace fuel duty and vehicle excise duty.
The body should consult experts on road planning, taxation and telematic technology, and it should consider international experience. It should be tasked with recommending an alternative road charging mechanism to replace fuel duty and vehicle excise duty by the end of 2022.
