The Chancellor is facing calls to urgently reform vehicle taxation to avoid a £5bn annual revenue gap by 2033 as the UK transitions away from petrol and diesel vehicles and towards zero-emission alternatives.
In a letter to the Chancellor, the Campaign for Better Transport (CBT) cautioned that the decline in fuel duty revenue as drivers switch to electric vehicles (EVs) could leave a significant hole in public finances. The charity proposed a pay-as-you-drive scheme for zero-emission vehicles (ZEVs) as a potential solution.
Silviya Barrett, representing CBT, said: “The new Chancellor faces a looming black hole. She can avoid it, in a way which is fair, and which garners broad public support. But she should start now, as this issue will only get more pressing.”
The proposed scheme would involve a per-mile charge for ZEVs, with an adequate transition period for the industry to prepare and exemptions for existing ZEV drivers to incentivize uptake. CBT research found that 65 per cent of the public believes it is fair for ZEV drivers to be taxed, albeit at a lower rate than petrol and diesel drivers.
CBT leads a Pay-as-you-drive Forum consisting of 37 organisations, including transport industry bodies, NGOs, and think tanks. While members have varying perspectives, all support a Treasury move on vehicle taxation, believing ZEV drivers should contribute fairly.
Ann Carruthers, President of the Association of Directors of Environment, Economy, Planning and Transport (ADEPT), said: “As we transition to a decarbonised transport system, it’s crucial that we address the funding gap created by declining fuel duty revenues. A well-designed, pay-as-you-drive system would provide both a sustainable funding source for our vital road infrastructure and also encourage the shift towards greener travel choices that are crucial for our net zero ambitions.”
Simon Williams, RAC head of policy, emphasised the need for simplicity and fairness in any new taxation system, suggesting a pay-per-mile scheme based on vehicles’ emissions. Alison Edwards, Director of Policy and External Relations at the Confederation of Passenger Transport, added that such a system could support a shift to public transport by balancing pricing between modes.
The Treasury has not yet responded to the letter, but the warnings signal the need for urgent action to address the revenue implications of the UK’s and other nations’ transition to electric vehicles.
