Per mile road pricing is 'most effective' way to plug the Treasury's £40bn tax hole

Published at: 04/05/2021

Per mile road pricing is 'one of the best fiscal changes' that any government could make and must be introduced by the end of the decade, a report handed to MPs this week claims. 

It said the pay-per-mile scheme should be mandatory in 2030 but electric vehicles drivers should be able to opt into the scheme from as early as 2023 with the temptation of grants and other incentives.

It also called on Chancellor Rishi Sunak to outline a 'ten-year trajectory to increase fuel duty' next year in a bid to encourage motorists to ditch petrol and diesel cars.

The report submitted to the Transport Select Committee says road pricing 'has always been the most effective way to tackle road congestion and pollution' - as well as plug the Treasury's £40billion-a-year tax hole when existing motoring-taxation revenue streams dry up.

Ministers are currently looking at ways to recover funds lost from both vehicle and excise duty (VED) - or car tax - and fuel duty when more drivers switch to plug-in vehicles and the number of petrol and diesel motors on the road declines.

The research was provided to the cross-party group of MPs who met on Wednesday as part of the zero emission vehicles and road pricing inquiry, and suggested a pay-per-mile scheme with charges based on vehicle weight, emission and traffic levels.

The report was produced by not-for-profit group Greener Transport Solutions, which provides recommendations to central and local Government.  

It comes as ministers look for alternative means to generate funds that will ultimately be lost from motoring taxation when drivers hand over their petrol and diesel cars and switch to zero-emission alternatives.

With the UK set to ban the sale of new models with internal combustion engines from 2030, the shift to electric vehicles is predicted to boom before the end of the decade.

While this will be good news for helping ministers trim the nation's worrying air pollution levels, it will also close the taps on a financial steam that boosts the Treasury's coffers every year. 

In November, the Times reported that Rishi Sunak is 'very interested' in introducing a form of road pricing as a long-term alternative to VED and a means of recovering losses from fuel duty, which is currently charged at 57.95p per litre of petrol and diesel.

Official figures show that the Treasury collects just over £40billion in vehicle-related taxation from these two sources alone.

Some £28billion comes via fuel duty and another £6billion on VAT on fuel, while £6.5billion is generated from VED charges to motorists.

However, with battery electric cars being VED-exempt due to their zero carbon emissions and - of course - not needing to visit filling station fuel pumps, the Government is scrambling to find an alternative source of raising funds from drivers.

Today’s report recommends that a road pricing scheme should be introduced to coincide with the 2030 ban to plug the imminent tax hole. 

'It has always been the most effective way to tackle road congestion and pollution, and now there is a fiscal imperative with the prospect of a £40billion hole in the public finances as receipts from road taxation disappear,' the green group's report says in the opening summary. 

It has put forward the proposition for a a scheme that's calculated on a vehicle's weight with car drivers charged a flat rate of 2p per kilometre.

Charges would be higher for heavier vehicles at 3p for vans and 6p for lorries, and these rates should also increase in line with weight per axle and wear and tear to the road surface. 

There would also be additional fees based on emissions and congestion during each journey that's taken. 

Report calls for fuel duty increase to encourage drivers to switch to EVs  


To help get a road pricing scheme off the ground, Green Transport Solutions suggested a phased implementation that 'incentives' motorists to ditch polluting petrol and diesel cars as early as possible.

It suggests starting next year with the chancellor outlining a ten-year trajectory for fuel duty increases to 'encourage' the switch to EVs.

The report also recommends that the Government sets out the initial charges for a road pricing scheme in 2022 under the proviso that it will be cheaper than VED. 

It also said a pilot scheme should be introduced next year - potentially in one of the country's Clean Air Zones - before drivers can opt into the full scheme from 2023. 

Motorists could then be tempted to ditch their internal combustion engine cars with the carrot of targeted EV grants, including price bands and applicability of different models for new and second hand EVs.

It also recommended slashing the price of a new sub-£35,000 EV by a third for drivers who commit to paying the new road user charge from 2023. 

A scrappage scheme for drivers who offload a petrol or diesel car that's more than 10 years old should also provide an extra £3,000 towards the price of a new EV, it said. 

These generous incentives would help to prevent a 'big bang' scenario when all motorists are forced to move across to the scheme in 2030, the report adds.

The likelihood of such enticing grants looks unlikely, with the Government outlining its plans to scale down financial incentives such as the Plug-in Car Grant (PiCG) and the Electric Vehicle Homecharge Scheme (EVHS) in its Road to Zero strategy published in 2018.

In fact, the PiGC was recently slashed from £3,000 to just £2,500 for new EVs, having once offered up to £5,000 off the price of a new plug-in model a decade ago. 

The EVHS scheme, offering up to £350 towards a home charger installation, was in February extended for another 12 months - a short-term commitment as ministers plot removing financial support as EV uptake increases and the market becomes self-sustaining.

'The switch from ICEs to EVs provides a window of opportunity for an honest conversation about road taxation, and to develop a politically deliverable national road pricing scheme,' the report concludes. 

'The investment case for funding the proposed new EV grants is compelling, as government would effectively be investing in a new revenue stream to replace the billions it currently receives in fuel duty and VED. 

'With interest rates so low, now is the right time to invest in greening the fleet to secure a guaranteed annual revenue stream. 

'The proposed national road pricing scheme, combined with the new EV grants, will deliver on key government priorities. 

'This proposal would accelerate the take up of electric vehicles, support the levelling up agenda, boost manufacturing and make the UK a climate leader on the decarbonisation of transport.'

Previous plans for a road pricing scheme were scrapped over a decade ago under the Labour Government following an opposing petition that racked up 1.8million signatures. 

The report handed to MPs this week suggests the creation of an independent body, such as the Office of Rail and Road, that will have the powers to set motoring taxation.