Zero emission vehicles shouldn’t mean zero tax revenue, says Transport Committee

The UK faces an under-resourced and congested future unless the Government acts urgently to reform motoring taxation, say MPs on the Transport Committee. 

A road pricing system, based on miles travelled and vehicle type, would enable the Government to maintain the existing link between motoring taxation and road usage. In today’s new report, Road Pricing, the Committee warns that it has not seen a viable alternative to a road charging system based on technology which measures road use. 

The ban on the sale of new petrol and diesel vehicles from 2030 will result in a corresponding decline in two significant sources of Treasury revenue.  As sales of electric vehicles increase, Treasury revenue from motoring taxation will decrease, because neither fuel duty nor vehicle excise duty are currently levied on electric vehicles. Without reform, policies to deliver net zero emissions by 2050 will result in zero revenue for the Government from motoring taxation. The Committee urges the Government to act now to replace a potential loss of £35 billion to the Exchequer. 

When replacing the existing motoring taxes, the committee calls for the Government to ensure that the new charging mechanism:

• entirely replaces fuel duty and vehicle excise duty rather than being added;
• is revenue neutral with most motorists paying the same or less than they do currently;
• considers the impact on vulnerable groups and those in the most rural areas;
• does not undermine progress towards targets on increased active travel and public transport modal shift; and
• ensures that any data capture is subject to rigorous governance and oversight and protects privacy.  

In signalling a shift to an alternative road charging mechanism, the report calls for drivers of electric vehicles to pay to maintain and use the roads which they drive on, as is currently the case for petrol and diesel drivers. There must, however, remain incentives for motorists to purchase vehicles with cleaner emissions.

As Departments responsible for managing congestion and maintaining the public purse, the Treasury and Department for Transport should join forces to set up an arm’s length body to examine solutions and recommend a new road charging mechanism by the end of 2022.

Chair of the Transport Committee, Huw Merriman MP, said: 

It’s time for an honest conversation on motoring taxes. The Government’s plans to reach net zero by 2050 are ambitious. Zero emission vehicles are part of that plan. However, the resulting loss of two major sources of motor taxation will leave a £35 billion black hole in finances unless the Government acts now - that’s four per cent of the entire tax-take. Only £7 billion of this goes back to the roads; schools and hospitals could be impacted if motorists don’t continue to pay.   

We need to talk about road pricing. Innovative technology could deliver a national road-pricing scheme which prices up a journey based on the amount of road, and type of vehicle, used. Just like our current motoring taxes but, by using price as a lever, we can offer better prices at less congested times and have technology compare these directly to public transport alternatives. By offering choice, we can deliver for the driver and for the environment. Road pricing should not cost motorists more, overall, or undermine progress on active travel.

Work should begin without delay. The situation is urgent. New taxes, which rely on new technology, take years to introduce. A national scheme would avoid a confusing and potentially unfair and contradictory patchwork of local schemes but would be impossible to deliver if this patchwork becomes too vast.  The countdown to net zero has begun. Net zero emissions should not mean zero tax revenue.