The UK must – and can – urgently reform its £32 billion of road
taxes so that the welcome transition to Electric Vehicles (EVs)
does not put pressure on the public finances and road congestion,
according to new research published today (Thursday) by the
Resolution Foundation.
Where the rubber hits the road – the 36th
report of The Economy 2030 Inquiry, funded by the Nuffield
Foundation – notes that the UK’s transition away from
fossil-fuel-powered cars is proceeding faster than many experts
predicted, with EVs accounting for one-in-seven new cars bought
last year.
However, while the rapid take-up of EVs is good news for both the
planet and motorists as they are cleaner and cheaper to run –
per-mile running costs for EVs are 60 per cent lower than non-EVs
– that also presents pressing challenges for policy makers with
half of those lower running costs made up of lower taxation,
specifically the lack of Fuel Duty, relative to traditional
vehicles.
First, the transition from fossil-fuel-powered cars to largely
tax-exempt EVs is creating a growing fiscal hole in the £32
billion of revenues currently collected via Fuel Duty and Vehicle
Excise Duty (VED). The EV transition is set to drive a £10
billion a year revenue shortfall by the early 2030s.
Second, the UK has internationally high levels of congestion – we
spend one billion hours per year sat in traffic, at a cost of £60
billion – and policy needs to play a greater role in tackling our
crowded roads.
The authors note that arguments for continuing with far lower
rates of vehicle taxation for EVs to encourage take-up are
misplaced, with regulations banning the sale of non-EVs by 2030,
and lower running costs generally already playing that role.
With higher-income families more likely to buy new electric cars
(two-thirds of new car spending is by the richest fifth of
households), maintaining big tax-breaks for EVs risk
disadvantaging those on lower incomes who can’t afford a new car,
says the Foundation.
A new ‘Road Duty’ for EVs – levied at around 6p per mile (plus
VAT) – would be enough to offset the fall in Fuel Duty revenues
over the coming decade, while maintaining incentives to switch
with EVs remaining 30 per cent cheaper to run than non-EVs. This
new duty could be collected using GPS data that new EVs are
already built with, and paid via monthly direct debits to
minimise disruption to motorists.
A GPS-collected system of Road Duty could also help tackle a
second big net zero and transport challenge facing Britain –
decongesting our roads.
The ability to implement congestion charging via this system
would make it far easier to tackle congestion in large town and
cities – where 81 per cent of all congestion takes place – ending
the need to install expensive vehicle recognition CCTV around
congestion zones.
While Road Duty should eventually become the main form of vehicle
taxation in Britain, the authors add that non-EVs should continue
to pay Fuel Duty instead, so that people who can’t afford to buy
a new car aren’t double taxed for doing so.
Finally, the Foundation says that tax policy should avoid
reinforcing the ‘pavement tax’ – whereby those with access to
off-street parking (76 per cent of the richest fifth vs just 56
per cent of the poorest fifth) are able to charge their EVs far
cheaper than those reliant on public charging points. The VAT
rate on electricity from public charging points (currently 20 per
cent) should be reduced to the same 5 per cent for home charging.
Jonny Marshall, Senior Economist at the Resolution
Foundation, said:
“The switch from fossil-fuel-powered cars to EVs is a key part of
Britain’s net zero transition, and it’s happening quicker than
most people expected. This is good news for the planet and
motorists as EVs are cleaner and cheaper to run.
“But unless we modernise road taxation to reflect the cars that
are on our streets today and in the future, we risk putting more
even pressure on the public finances and our crowded roads.
“We need a new GPS-based ‘Road Duty’ for EVs to offset falling
Fuel Duty revenues, and ensure that the Net Zero transition
doesn’t leave poorer drivers in older cars bearing the burden of
vehicle taxation.
“VAT rates on those using public chargers should also be reduced
to the same level enjoyed by those, generally richer households,
lucky enough to charge at home.
“Our tax system needs to keep pace with the Electric Vehicle
transition, in a way that protects low- and middle-income
households.”