The Chancellor has revived the idea of a national toll as the green car revolution slows down annual tax receipts of up to £40 billion. The Treasury is looking at ways to replace lost fuel duty and excise duty (VED), better known as road tax, with a system of paying by mile.
The idea of such a move embraces the concept last discussed by Tony Blair’s government in 2007, but abandoned in the face of opposition from motorists. The newspaper reported that the Chancellor was “very interested” in ideas such as a tolls, while ministers are pushing ahead with plans to ban sales of new petrol and diesel cars and “pay – how – you drive.”
The Financial Times reported that the current 2035 deadline is likely to bring the deadline for meeting the government’s target of zero carbon emissions by 2050 to 2030. The environmental targets linked to the tolls therefore threaten to jeopardise £40bn of tax revenues. The fuel duty freeze since 2011 has raised £28billion, with the rest coming from VAT on fuel sales. Alternative routes for roads must be found, so each toll must be accompanied by an environmental objective.
Despite the disruptions caused by the coronavirus, 2020 has not proved to be a great guide to demand for electric vehicles. A recent report from the Department for Environment, Food and Rural Development (DfR) shows that so far this year only 1.5 million battery-powered electric cars have been driven into car showrooms. By comparison, more than half a million petrol and diesel cars were sold in Britain last year, compared with less than a million in 2015.
The SMMT statistics show that sales of electrical products increased by 168% in 2016, while diesel sales fell by more than 50%. This represents a significant increase in the number of electric vehicles on Britain’s roads, but the figures do not indicate a change in behaviour, even though the range of all electric models has increased.
The AA has acknowledged the threat to the Chancellor’s income from the current road tax at a time when Osborne is already under pressure to pay for the record peacetime borrowing demanded by the crisis. Edmund King, president of the motoring organisation, said: ‘The Government cannot afford to lose £40billion in fuel duty and road tax when the electric revolution comes.
The toll has been increased every five years since 1964 and is still perceived by most as a tax on the steering wheel. It was always accepted as a solution, but it has been and is still being raised, and most people still see it as a “poll tax” on wheels.
Meanwhile, research by the RAC found that 40% of drivers believe that some form of “pay-by-the-mile” system would be fairer than the current fuel tax system. Meanwhile, the AA has come out in favour of the idea of a car allowance, which will be levied on every kilometre driven over 3,000 kilometres this year. The AA’s chief executive, Sir Richard Branson, said: “While not paying road tax is clearly an incentive to drive fully electric at the moment, such a system is necessary.
If we do not address this, we risk ending up in a situation where petrol and diesel drivers continue to pay a full tax on the use of the road, which is unsustainable. The Ministry of Finance and Sunak itself declined to comment on the possible impact of the new road tax on road user charges and the future of fuel duty.