Last year fuel duty raised £20.9 billion for the exchequer, down from a previous six-year average of £27.7bn – a sharp, Covid-induced insight into the sort of shortfall that EV sales could very quickly present were they to boom.
Today, tax is levied on petrol and diesel at a flat rate of 57.95p per litre, with VAT then added at 20% on the product and duty. The percentage of what you pay at the pumps in tax is actually at its lowest level since 2013 (about 58%), such has been the effect of duty freezes and rising prices.
While the 2030 ban on the sale of purely combustion-engined cars applies to only new vehicles – and a car parc of 25 million or so combustion-engined cars will live on to at least 2040 and possibly 2050 – it’s clear that urgent reform is needed to protect the nation’s finances. Fuel duty accounts for 3.3% of all the exchequer’s receipts. In the current climate, a dwindling returns model will not work.
How to replace income that is estimated to cost the average car-owning household £1000 a year? The exchequer has been busy recently clarifying VAT on public EV charging, but this is fiddling at the edges. Household charging makes pump-style taxation impossible. An alternative is needed, and it is looking increasingly likely to be pay-per-mile road pricing.
The idea has bounced around governments for decades but was regularly kicked down the road for being too much of a hot potato. In the late 1990s, Labour came close to making a decisive switch but demurred in the face of a public backlash, and it’s no coincidence that earlier this year, it was the Tony Blair Institute that put the idea back in the news. Soon, one of the parties is going to have to blink, just because of the timelines involved – if not this government, then surely the next. Even if the charges are equitable at around 5p/mile, a tax most pay unthinkingly today will become front of mind.
Despite road pricing being rooted in the same principle as fuel taxation – the further you drive, the more you pay – issues centre on the cost of setting up the charging infrastructure through to the moral arguments around tracking everyone, and the grey areas around data that follow from there. No matter that carrying a mobile phone in your pocket can do almost all these things today, this is perceived by its critics as Big Brother working on a whole new scale. The fallout will be significant and come from many angles.