Ministers consider pay-as-you-go road pricing to fill car tax black hole

Ministers consider pay-as-you-go road pricing to fill car tax black hole
Ministers consider pay-as-you-go road pricing to fill car tax black hole

Drivers could be charged on a pay-as-you-go basis in the future as the Government looks to fill a £40 billion hole in motoring taxes.

The House of Commons’ Transport Committee has said it wants to start a “national debate” on road pricing ahead of a formal inquiry next year.

Such a debate could cover everything from road tolls to low-emissions zones and workplace parking charges.

A road pricing scheme was previously suggested in 2007 but met with strong public opposition and was abandoned after 1.8 million people signed a petition against it. However, earlier this month the Institute for Fiscal Studies called on the Government to reexamine the issue as it faces a loss of revenue caused by the rise of electric vehicles.

Motoring taxes including Vehicle Excise Duty (VED) – commonly referred to as car tax – and fuel duty bring £40bn to the Treasury each year. However. EVs that cost less than £40,000 currently don’t attract any VED and also don’t generate any money through fuel duty, meaning as their sales rise the Government faces a sharp drop in annual income.

Looming black hole

Nissan Leaf EV
The rise in sales of EVs which are exempt from VED and fuel duty could eventually cost the Treasury £40bn a year (Photo: Nissan)

Lilian Greenwood, who chairs the Transport Committee, said: “We cannot ignore the looming fiscal black hole. We need to ask how we will pay for roads in the future and in answering that question we have an opportunity for a much wider debate about our use of road space, cutting carbon emissions, tackling congestion, modal shift and how we prioritise active travel.

“Tackling the climate emergency is essential but this is about more than what we must do to meet that challenge. It’s also about our health and the sort of towns and cities we want to live in.

“This isn’t about pricing drivers off the road; it’s about making sure that as many people as possible have a say in future plans so that we can manage the changes to come.”

Read more: Car tax increases – how VED is changing in 2019

Multiple charges

The committee says that the debate will not only look at introducing road tolls which charge drivers for the length of their journeys but also consider generating revenue through other methods.

Low-emissions zones like the one operated in London and being introduced in Birmingham and Glasgow are seen as one potential source of revenue, as well as congestion charges in towns and cities. In London, the Congestion Charge raised £1.9bn in 2017.

The committee has also suggested it could raise money by introducing a workplace parking levy that would see businesses or their staff forced to pay for using an office car park. Nottingham has raised £53.7m through such as scheme since 2012.

The more you drive, the more you pay

London ULEZ sign
Congestion and low-emission zone charges could also be used to recoup lost revenue (Photo: Jack Taylor/Getty Images)

RAC head of roads policy Nicholas Lyes said: “There is no question that the existing fuel duty system is on borrowed time as we move towards electric and other zero emission forms of car travel.

“We know through research that drivers are open to a new form of motoring taxation but three-quarters of those we questioned are worried they may end up paying more tax than they do now. For this reason we believe any new tax should be in place of the current one and not in addition to it.

“Our research also suggests that a sizeable number of drivers would see a ‘per mile’ road pricing option as fairer than the current system of paying fuel duty, and there is a large level of support for the principle of the ‘more you drive, the more you pay’. In addition, drivers tell us that any ‘pay per mile’ system of road pricing would make them consider cutting out short journeys.”

However, AA president Edmund King warned that motorists “will never vote for road pricing” and urged greater imagination in finding ways to raise funds.

In 2017 he and his business analyst wife proposed a scheme to have companies buy the naming rights to major roads in the same way as they do for sports stadia.

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