Conservative response to pay-per-mile

Richard Holden MP, Shadow Secretary of State for Transport, said:

“We now have the grotesque chaos of a Labour Government - that came to power without a plan - now using taxpayers' money on the one hand to subsidise people to buy foreign made electric cars and on the other hand now wants to tax them for doing so as well as hit all other drivers with a fuel duty increase.

“Britain cannot afford a spineless government that rather than standing up to its own backbenchers to stop the exponential growth in welfare payments instead treats motorists as a cash machine to plug the holes Rachel Reeves and Sir Keir Starmer are creating.

“Families are not an ATM for Rachel Reeves, yet under Labour, everyone who relies on a vehicle is being lined up for another shakedown.”

ENDS

Notes to Editors:

Declining revenues from Fuel Duty:

• The Fiscal Risks and Sustainability Report estimates the fiscal cost of climate ‘change mitigation' through to 2050 as £803 billion – of which two-thirds can be attributed to lost receipts. ‘Our latest central estimate of the fiscal cost of climate change mitigation through to 2050- 51 is £803 billion (21 per cent of GDP), or £30 billion a year on average, of which two-thirds can be attributed to lost receipts (Chart 1.10). Expenditure accounts for the bulk of the fiscal cost in the next decade, particularly public investment in residential buildings, removals and surface transport. Receipts losses – mainly from lost fuel duty receipts – rise steadily over the projection period' (OBR, Fiscal risks and sustainability report, 8 July 2025, link).

o   The Fiscal Risks and Sustainability Report estimates that revenue losses from declining consumption of hydrocarbons amount to £20.5 billion per year on average from 2024-25 to 2050-51. ‘In our central scenario, these revenue losses amount to £20.5 billion (0.5 per cent of GDP) per year on average between 2024-25 and 2050- 51. Of this, three-quarters comes from declining fuel taxes as petrol-driven cars are replaced by electric vehicles' (OBR, Fiscal risks and sustainability report, 8 July 2025, link).

o   Of this, approximately three-quarters – around £15.5 billion – comes from declining fuel taxes as electric vehicles (EVs) are adopted. ‘In our central scenario, these revenue losses amount to £20.5 billion (0.5 per cent of GDP) per year on average between 2024-25 and 2050- 51. Of this, three-quarters comes from declining fuel taxes as petrol-driven cars are replaced by electric vehicles' (CRD Analysis, 10 July 2025, available on request; OBR, Fiscal risks and sustainability report, 8 July 2025, link).

• The Fiscal Risks and Sustainability Report noted the fiscal costs of the net zero transition can be lower if governments replace the lost revenues from Fuel Duty. ‘The fiscal cost of the net zero transition could be lower if governments chose to replace the lost revenues from fuel duty, for example through an alternative motoring tax, or if they chose to fund a lower share of the economy-wide investment path, for example through relying more on regulation to deliver the transition' (OBR, Fiscal risks and sustainability report, 8 July 2025, link).

Rachel Reeves could introduce a pay-per-mile Car Tax:

• The Tony Blair Institute has urged Rachel Reeves to introduce road pricing, describing it as a ‘priority' reform for 2025. ‘Rather than increasing fuel duty in the spring, introduce a simple pay-per-mile road-pricing system of 1p per mile for cars and vans, and 2.5p to 4p for heavy-goods vehicles. This reform would be revenue neutral compared with current plans to raise fuel duty but would be a crucial step in reforming the UK's system of motoring taxation for the electric-vehicle era. In doing so, it would help prevent a growth-stifling rise in road congestion' (Tony Blair Institute, Looking Beyond UK Budget 2024: Priority Reforms for 2025, 23 October 2024, link).

• Labour say they have ‘no plans' to introduce a Car Tax. Regarding road pricing, a government spokesperson said: ‘We have no plans to introduce road pricing. We are committed to supporting our automotive sector as we transition to electric vehicles in order to meet our legally binding climate targets'

o   However, during the general election, Labour said they have ‘no plans to increase any taxes' beyond what was set out in their manifesto – but their Autumn Budget introduced £30 billion of previously unannounced tax hikes. Labour's manifesto set out £7.35 billion of revenue raisers and £4.84 billion of spending plans – but Rachel Reeves' Autumn Budget increased spending by £70 billion a year, with around £40 billion of that raised in taxes. During the General Election, Rachel Reeves said: ‘I have no plans to increase any taxes beyond those which we have already set out' (The Labour Party, Labour's fiscal plan, 13 June 2024, link; OBR, Economic and Fiscal Outlook, 30 October 2024, link; Labour Press Conference, 11 June 2024, archived).

o   During the general election, Labour said they have ‘no plans' to increase Inheritance Tax – but then introduced the Family Farm Tax, which will affect thousands of farms and families across the country. During the General Election, Keir Starmer said Labour ‘have no plans to raise inheritance tax', but the 2024 Autumn Budget announced that Agricultural Property Relief on Inheritance Tax would be reduced from 100 per cent to 50 per cent. The NFU reacted by saying that this change ‘threatens family farms' and will ‘make producing food more expensive' – risking our domestic food security (HM Treasury, Autumn Budget 2024, p. 48, 30 October 2024, link;NFU, 30 October 2024, link; NFU, 20 December 2023, link; LabourList, 21 February 2023, link; Press Association, 5 June 2024, archived).

o   In Opposition, Labour said they have ‘no plans for a wealth tax' – a promise Keir Starmer refuses to repeat. In 2023, Rachel Reeves said: ‘We have no plans for a wealth tax. I don't see the way to prosperity as being through taxation'. However, When Kemi Badenoch questioned Keir Starmer on the introduction of a Wealth Tax, Starmer said: ‘The right hon. Lady says that we should not be asking them for advice on the economy. She is absolutely right about that; we will not be asking for their advice' (Sky News, 27 August 2023, link;Hansard, 9 July 2025, Vol.770 Col.939, link)

The introduction of a pay-per-mile Car Tax would be disastrous for businesses and working people:

• The introduction of a Car Tax would cost drivers £12 billion. In 2024, cars and taxis travelled 256.1 billion miles. If charged 1p per mile, drivers would face £2.561 billion in additional costs. Over five years, a Car Tax would cost drivers £12.805 billion (DfT, Road traffic estimates in Great Britain, 2024: Headline figures, 12 June 2025, link; CRD Analysis, 24 July 2025, available on request).

o   The introduction of a Car Tax would cost a typical family with two cars £140 per year. According to the RAC, the estimated average annual mileage per car in England is 7,000. Therefore, a typical family with two cars would face £140 in additional costs (RAC Foundation, Press Release, accessed 24 July 2025, link; CRD Analysis, 24 July 2025, available on request).

o   This comes after Labour's growth-killing Autumn Budget hit motorists with a £1.7 billion Vehicle Excise Duty tax raid. In her first Budget, Rachel Reeves revealed that buyers of petrol, diesel and hybrid cars are to be hit in a £1.7 billion raid on motorists, with their first-year Vehicle Excise Duty rates set to double in some cases (The Telegraph, 30 October 2024, link).

• The introduction of a Car Tax would cost van drivers £2.9 billion. In 2024, light commercial vehicles (LCVs) travelled 58.5 billion miles. If charged 1p per mile, van drivers would face £585 million in additional costs. Over five years, a Car Tax would cost van drivers £2.925 billion (DfT, Road traffic estimates in Great Britain, 2024: Headline figures, 12 June 2025, link; CRD Analysis, 24 July 2025, available on request).

• The introduction of a Car Tax would cost the haulage sector £2.4 billion. In 2024, HGVs in the UK travelled 19.4 billion kilometres – or 12 billion miles. If HGVs were charged 4p per mile, the cost for travelling 12 billion miles would be £480 million. Over a five-year period, the introduction of road pricing would cost the haulage industry £2.4 billion (DfT, Domestic road freight statistics, United Kingdom: 2024, 9 July 2025, link; CRD Analysis, 24 July 2025, available on request).

o   Kevin Green, policy director at Logistics UK, said the haulage and logistics sector ‘simply cannot afford' any additional tax increases. Kevin Green said: ‘While we welcome the Spending Review in principle, we, along with our members, are making clear to the Chancellor that this investment cannot be funded by higher taxation on hard-pressed businesses. Increases in employers' National Insurance Contributions are costing our sector an estimated £1.7 billion, and our members simply cannot afford any more whether this is through fuel duty or other business taxes. It is SMEs that power the UK economy and they will be forced to pass on any cost increases which will drive inflation and hamper growth' (Transport Engineer, 12 June 2025, link).