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How electric cars will leave road tax ‘black hole’

MPs warn that electric cars could deprive government of £35bn of revenue

Electric car interior

A group of MPs has said the UK needs to introduce new motoring taxes for electric cars to avoid slipping towards “zero revenue” by 2040.

The sale of new petrol and diesel cars and vans will be banned in the UK in eight years’ time, in a move designed to boost the electric vehicle market. But the transport select committee warned today that “policies to deliver net zero emissions by 2050 are likely to result in zero revenue for the government from motoring taxation by 2040”.

Electric cars are exempt from road tax and their drivers do not have to pay fuel duty either. Combined, those two levies “raise around £35bn a year”, said the BBC.

Unless the government acts to “reform motoring taxation” and plug the gap, the UK “faces an under-resourced and congested future”, the MPs said.

With vehicle excise duty currently bankrolling road repair, the report recommended an approach of “road pricing”, which would charge drivers per trip, based on the distance travelled, duration of the journey and vehicle type, said the Daily Mail.

Last week, The Guardian said road pricing could offer “a fairer, sustainable way to make polluting drivers pay, ease congestion and fund better transport” but “few politicians in power have ever wanted to take the flak that would come with introducing it”.

Singapore has had a road-pricing scheme for more than 20 years, in which motorists are billed automatically for journeys measured when they pass a series of gantries.

Past proposals to introduce such a scheme in the UK have tended to meet with public disapproval. MPs have now suggested that the Treasury and the Department for Transport need to embark on an “honest conversation” about how to maintain investment in roads and public services as the UK moves towards vehicles that do not pay towards these two motoring levies, said The Independent.

The impact of the lost revenue could spread beyond roads. Huw Merriman, the Conservative chair of the transport select committee, said the expected £35bn black hole in finances is “4% of the entire tax take” and as only £7bn of this goes back to the roads. As a result “schools and hospitals could be impacted”.

Steve Gooding from the RAC Foundation agreed that the rise of electric cars sets up a major dilemma for public finances, saying that the “silver-lining of zero-carbon motoring comes wrapped in a cloud of trouble for the chancellor”.

As a way to dispel that cloud, MPs have urged ministers to set up an arm’s-length body to recommend a new regime by the end of 2022.

With data from the Society of Motor Manufacturers and Traders showing that plug-in vehicles accounted for more than one in six new cars registered in the UK last year, the MPs said “the situation is urgent” and “work must begin without delay”.

A government spokesman said ministers were committed to keeping the transition to electric cars “affordable for consumers”.

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