As we transition towards electric vehicles that don’t incur fuel duty, the Treasury faces a revenue loss of £30bn each year. Given the unpopularity of fuel duty, a report by Scott Corfe of the Social Market Foundation explores the case for introducing a nationwide road pricing system in the UK – setting out a model that is fairer than fuel duty, replaces lost tax revenue, and reduces the burden on low-income households.
Key findings
Sticking to status quo is not tenable
- The transition to EVs will virtually eliminate government revenues from fuel duty – this is an annual loss to the Treasury of £30bn.
- If EVs face limited taxation, congestion is set to get worse. The Department for Transport has forecast that road traffic in England and Wales will grow by between 17% and 51% by 2050, compared with 2015, driven predominantly by a combination of population growth and a reduction in vehicle running costs.
- Fuel duty is regressive, and will become even more regressive over the coming years, as higher-income households switch to EVs at a faster rate. Increasing fuel duty while leaving EVs untaxed would increase the motoring tax burden on lower-income households. This is despite the fact that lower income motorists drive fewer miles.
Road pricing is the best solution, and voters would welcome it
- In the Foundation's survey of 3,000 UK adults, more respondents supported (38%) than opposed (26%) road pricing – this holds true across income groups, regions and whether someone’s a motorist
- Among those who opposed, major concerns about road pricing included having to pay more and having to use devices that monitor their travel. While there’s more support for a uniform (51%) than variable road price (42%), a variable price is supported when it gets polluting cars to pay more tax.
Recommendations
So that road pricing addresses unfair tax burden, increasing congestion due to EVs, and public trust in motoring taxation, Government should:
- Develop the infrastructure to support a simple national-level road pricing scheme, with a flat per mile rate and a free mileage allowance – and set out a timetable for implementing it
- Reduce the burden on lower-income motorists during the transition period from internal combustion engine (ICE) vehicles to EVs by abolishing or reducing fuel duty at the same time as road pricing is implemented. If fuel duty were to be abolished, an ICE vehicle road pricing surcharge should be introduced to retain incentives to shift to EVs
- Establish a Road Pricing Commission to improve transparency around motoring taxation and trust around its aims
- Deal with localised congestion by complementing a flat-rate national road pricing scheme with localised road pricing initiatives such as congestion charges in cities
