A think tank has called for a 6p per mile ‘Road Duty’ charge to be levied on electric cars to help fill the financial black hole caused by declining fuel duty revenue as drivers switch away from petrol and diesel vehicles.
The Resolution Foundation says the new fee would help shore up the public finances while still making electric vehicles attractive to buy and run.
In its report, Where the Rubber Hits the Road, the Foundation says the new duty could be collected using GPS data that new EVs are already built with, and paid via monthly direct debits to minimise disruption to motorists.”
Jonny Marshall, senior economist at the Resolution Foundation, said: “The switch from fossil-fuel-powered cars to EVs is a key part of Britain’s net zero transition, and it’s happening quicker than most people expected. This is good news for the planet and motorists as EVs are cleaner and cheaper to run.
“But unless we modernise road taxation to reflect the cars that are on our streets today and in the future, we risk putting more even pressure on the public finances and our crowded roads.
“We need a new GPS-based ‘Road Duty’ for EVs to offset falling Fuel Duty revenues, and ensure that the Net Zero transition doesn’t leave poorer drivers in older cars bearing the burden of vehicle taxation.
“VAT rates on those using public chargers should also be reduced to the same level enjoyed by those, generally richer households, lucky enough to charge at home.
“Our tax system needs to keep pace with the electric vehicle transition, in a way that protects low- and middle-income households.”
Responding to the report, Steve Gooding, director of the RAC Foundation, said: “These are still early days for the electric car market – the ban on selling new petrol and diesel cars from 2030 is helping pull-through an ever-growing number of new models of all shapes and sizes, but we also hear motor industry chiefs reporting people switching back to petrol and diesel vehicles because they are easier to use.
“Huge swings in electricity prices have left people unsure about the running cost advantages of switching. No wonder that ministers might fear introduction of a per-mile charge for EV drivers could risk slamming the drive away from fossil fuels into reverse.
“The chancellor is wrestling with two mutually incompatible imperatives: the fiscal desire to maintain his tax take from drivers and the environmental urge to make electric cars attractive to buyers.
“While giving a so-called ‘tax break’ to wealthier households who avoid fuel duty by going electric might look illogical the fact is there’s a green urgency to get those cars onto our roads in increasing numbers, and that means encouraging the people who are in the market for buying new.
“One thing is definite, with so much duty revenue at stake the chancellor must eventually make public his long-term plans for reforming motoring taxation. The more people who have gone electric on the basis of fuel savings, the less popular it will be to create a new motoring tax that catches them by surprise.
“A bold chancellor might, in the short to medium term, decide that losing a few billion pounds in fuel duty is a price worth paying to save the planet.”
The RAC Foundation has carried out research into the fiscal challenges the chancellor faces as fuel duty declines. It estimates the amount of fuel duty from cars lost could reach £5bn per annum by 2030.
