Autumn Budget 2021: Government accused of "kicking the can down the road" on EV road tax

Published 28 October 2021

The Government has been accused of delaying much-needed Road Tax reform, with the mass uptake of electric vehicles expected to create a £37 billion annual shortfall in VED.

It has been widely acknowledged that the UK’s move from internal combustion engine (ICE) vehicles to electric will leave the Treasury with a huge hole in its Road Tax intake as there is currently no fuel duty on EVs and VED is either zero or reduced. 

Last week, the Treasury’s Net Zero Review highlighted the £37 billion tax revenue raised from fuel duty and VED in 2019-20 (equivalent to 1.7 per cent of GDP), and warned that if the current VED system remained unchanged tax receipts “from most fossil fuel related activity will decline towards zero”. 

Yet the review failed to say how the Government will address this and Chancellor of the Exchequer Rishi Sunak made no mention of it in yesterday’s (27 October) Budget and Spending Review. 

EV

Road pricing has been tipped as one possible solution to the fiscal black hole and is currently being looked at by the House of Commons Transport Select Committee, with a report expected in time for the UN Climate Conference COP26’s transport day (10 November), which the UK is hosting in Glasgow. 

In the Committee’s recent evidence session, Steve Gooding, director, RAC Foundation explained the dilemma the Government faces.

“If you wish to encourage the rapid take-up of electric and zero tailpipe vehicles, as the Committee has recommended, you do not want to add further to the cost differential,” he said. 

But experts are warning that the Government can’t keep delaying the issue. 

Money

Caterina Brandmayr, head of climate policy at Green Alliance, said: “While the Treasury is faced with the inevitable drop in fuel duty revenue in the coming years, it remains silent about any plans to reform road taxation. 

“But the Chancellor cannot delay this much longer, as doing nothing is not an option, and sudden tax changes are unlikely to go down well with the public. 

“That’s why the Government should urgently start a conversation around what a fairer and more sustainable road tax system should look like.”  

Stephen Joseph, transport policy consultant, added: “The Government can’t keep kicking the can down the road forever. Everybody knows that if we’re moving towards electric vehicles, the Government is going to have to find a way of replacing the revenue it currently gets from fuel duty.”

Money 2

Joseph said that the sooner the Government makes people buying electric cars aware they will have to pay something to use the roads “the better”. 

Toby Poston, director of corporate affairs at the British Vehicle Rental and Leasing Association (BVRLA), whose members own and operate around four million vehicles and buy approximately 50 per cent of all new vehicles sold each year, agreed. 

“As more and more people adopt zero emission vehicles, they should be paying their way,” he told the Transport Select Committee.

“The longer we leave it, the more people will get used to the idea of having very low-cost transport, if they adopt electric vehicles, and it will come as a shock.”

“The longer we leave it, the more people will get used to the idea of having very low-cost transport, if they adopt electric vehicles, and it will come as a shock.”

1What would a road pricing system look like?

Witnesses at the Transport Select Committee meeting agreed that a simple national system needs to be introduced but with the flexibility for it to be changed in the future. 

Poston said: “Any new road pricing scheme must be easy to pay and have the simple objective of providing a revenue-neutral replacement for fuel duty and VED. 

“It should be based on a simple ‘distance driven’ model that considers vehicle weight, emissions and use case, with discounts given to shared mobility solutions – such as car clubs, rental cars, buses and taxis – to incentivise more sustainable travel choices.”

As to how much people would pay, John Siraut, director of economics at multidisciplinary consultancy 
Jacobs, which has worked on the introduction of road charging in other countries, suggested that to roughly raise the same amount of revenues as the Treasury does now for VED and fuel duty “about 10p a mile would be the base charge”.

However, he said: “You would want a flexible system that had very differential charges between rural and urban areas, time of day, and so on." 

Alistair Hunter, highways business leader at design and technical engineering consultancy Arup, said: “I think it has to be dynamic. You have to have flexibility. If you look at the outcomes that you are trying to achieve, that is where you start from.

"In an urban environment at peak hours, you are trying to disincentivise people from using the car. In a rural environment on a Sunday afternoon, it is a totally different price point. I see variability in that.”

2How will drivers react to pay-per-mile road tax?

Traditionally, road pricing has been a ‘political hot potato’ - the 1997-2010 Labour Government looked at national road pricing but went off the idea due to the negative reaction from voters. 

Recent surveys have had mixed results, with some suggesting people are more open to the idea, particularly as they have got used to paying the London congestion charge and more cities introducing clean air zones, but there are also concerns about privacy and security. 

Understanding where the revenue raised goes will help get buy-in from the public, according to witnesses at the Transport Select Committee. 

They suggested a need for transparency about the overall amount of money that is raised, not just through fuel duty and vehicle excise duty, but from air passenger duty and other transport and travel sector related funds. 

The cost to implement the system, the technology solutions and regulation are all factors the Government will need to consider. 

3What are the alternatives to pay-per-mile road tax?

Instead of road pricing, the Government could consider a tax on charging electric cars but Mike Williams, director for business and international tax at HM Treasury, highlighted the challenges to the Transport Select Committee. 

“With electricity, you already start with the fact that there are far more suppliers of electricity and you then have the issue that electricity is used for other purposes,” he said. 

“If you are thinking of people charging in the home, and certainly if I were to do that, at the moment there is no mechanism for my supplier to know if I am using the washing machine or charging a car. 

“You would have to put in that infrastructure if you were to go down that road, which is new infrastructure that is not there, which would have to be paid for.”

As to whether taxing insurance is a means of raising revenue, Williams said: “We charge insurance premium tax on insurance premiums for motoring insurance. To that extent, we are already taxing it.”

Ask HJ

How does the £40k road tax VED rate work?

I have a BMW 335d GT first registered in December 2017. The car's original list price was over £40,000, which means I have to pay the higher VED rate. But I am confused about the length of time this higher road tax rate is applied for. When I check the road tax status it says I have to pay this supplement until 30/11/2023? I thought the extra supplement was for five years not six? Can you please confirm how many years I need to pay the extra road tax? regards, Malcolm Macmillan
The premium £40k car tax rate is paid for five years in which the standard rate of VED paid (from the second year the vehicle is taxed). The car's first-year VED rate is based on the CO2 emissions and is not included in this timeframe. For more details on the road tax VED system, see: https://www.honestjohn.co.uk/cheap-road-tax/
Answered by Dan Powell
More Questions

Comments

   on 28 October 2021



We were all misled into buying Diesel cars, looks as if exactly the same is going to happen with anything electric or hybrid before long. There will be hidden charges creeping in.

Our Polo does less M.P.G. on the new E10 petrol is this usual?

Donald Trumpet    on 28 October 2021

We were all misled into buying Diesel cars, looks as if exactly the same is going to happen with anything electric or hybrid before long. There will be hidden charges creeping in. Our Polo does less M.P.G. on the new E10 petrol is this usual?

E10 petrol is less energy dense so less MPG, So yes all being misled again!

Ojohn    on 29 October 2021

TVR 4000 mile per year Road tax £240

Mini 4000 miles per year road tax £155

VW Touareg 7000 miles per year £250

That's £650 road tax per year

Add the mileage up @10p per mile 15000 miles = £1500

That more than double

hissingsid    on 29 October 2021

Firstly, we were not all misled into buying diesel cars. Some of us were not fooled by the "dash to diesel", any more than we are being fooled by the extravagant claims made for Hybrid and EV cars.

Secondly, there has been no measurable difference in the fuel consumption of my Mazda CX-3 since changing to E10 petrol. I am more concerned about the long term availability of E5 for my 1970 Rover 3.5 Litre Coupe.

Thirdly, there is more to road pricing than money. Every journey would have to be monitored and recorded. Big Brother will be watching you.

Mr Dave    on 30 October 2021

Surely taxing those with an EV is counter productive. It should those still burning fossil fuels that should pay more to cover the shortfall. Double road tax on ICE cars to encourage more to jump to an EV sooner.
Eventually, there will come a point where EV owners will have to pay more as things equalise but fossil burners should ALWAYS pay more, otherwise where is the benefit of buying an EV?

Edited by Mr Dave on 30/10/2021 at 08:10

hissingsid    on 30 October 2021

Surely taxing those with an EV is counter productive. It should those still burning fossil fuels that should pay more to cover the shortfall. Double road tax on ICE cars to encourage more to jump to an EV sooner. Eventually, there will come a point where EV owners will have to pay more as things equalise but fossil burners should ALWAYS pay more, otherwise where is the benefit of buying an EV?

If only things were that simple. EV's are responsible for burning fossil fuels, albeit indirectly. Fossil fuels are still being burnt to generate the electricity to recharge their batteries, so in fairness EV's must bear some of the tax burden.

   on 31 October 2021

There is an easy solution to the problem of 'lost' road tax on electric vehicles.
Require all vehicles to have an annual MOT at which the mileage of each vehicle is recorded. After the 1st year, all vehicles can be charged on the previous years mileage.
This would be equitable for all road users and be easy to charge as the Government could require all vehicle owners to either pay the amount as a one-off payment or be charged monthly via direct debit.

Add a comment

 

Value my car