Vehicle taxation: Labour must act to avoid £5bn black hole

Campaign for Better Transport writes to Chancellor

The Campaign for Better Transport has written to the Chancellor urging her to reform vehicle taxation or face a massive revenue gap.

With the UK transitioning away from petrol and diesel vehicles towards zero-emission vehicles, the letter warns, revenue from fuel duty will decline by an estimated £5 billion a year by 2033.

Silviya Barrett, director of policy and research at the Campaign for Better Transport, said: “The new Chancellor faces a looming black hole. She can avoid it, in a way which is fair, and which garners broad public support. But she should start now, as this issue will only get more pressing.”

The easiest immediate solution, the letter says, would be a simple charge levied on zero-emission vehicles (ZEVs) on a per-mile basis. Having an adequate transition period would enable industry to prepare. And exempting existing ZEV drivers would incentivise uptake before the implementation date.

“It should be cheaper to drive a zero-emission vehicle than a more polluting vehicle, but it’s only fair that these drivers should pay a share, and a pay-as-you-drive model can achieve this,” Barrett said.

Research by Campaign for Better Transport showed that 65% of the public believe it is fair for ZEV drivers to be taxed but at a lower rate than petrol and diesel drivers versus only 19% who disagree.

Campaign for Better Transport leads a Pay-as-you-drive Forum, which comprises 37 organisations including transport industry and sector bodies, NGOs and think tanks.

While different members of the Forum have slightly different perspectives, all would support a Treasury move on vehicle taxation, believing it is important that ZEV drivers should fairly contribute.

ADEPT president Ann Carruthers said: “As we transition to a decarbonised transport system, it’s crucial that we address the funding gap created by declining fuel duty revenues.

“A well designed, pay-as-you-drive system would provide both a sustainable funding source for our vital road infrastructure and also encourage the shift towards greener travel choices that are crucial for our net zero ambitions.” 

RAC head of policy Simon Williams said: “With fuel duty revenue set to fall further as more electric vehicles come on to the road, a replacement form of taxation needs to be introduced to avoid losing billions. 

“Our research suggests drivers broadly support the principle of ‘the more you drive, the more tax you should?pay’. Whatever any new taxation system looks like, the most important thing is that it’s simple and fair to drivers of both conventional and electric vehicles. A?pay-per-mile?system could be set up according to vehicles’ emissions with EV drivers?paying the least to further encourage take-up and ‘gas guzzlers’?paying?the most. We’re not in favour of charging different amounts?per?mile?based on the type of road driven on. 

“We believe the Treasury needs to get moving on creating this new system sooner rather than later.” 

Alison Edwards, director of policy and external relations at the Confederation of Passenger Transport, said: “Bus and coach operators recognise that for the UK to meet its net zero carbon targets many more people must be persuaded to use public transport more often. The introduction of pay-as-you-go vehicle taxation could support this shift by balancing pricing between modes. This would help curb congestion – something that will in turn make buses and coaches quicker, more reliable and so more attractive.”

Campaign for Better Transport leads a Pay-as-you-drive Forum members include

• Adam Smith Institute
• ADEPT
• Arup
• BusinessLDN
• Centre for London
• Centre for Policy Studies
• Chartered Institution of Highways & Transportation (CIHT)
• CPT UK
• Cycling UK
• Energy & Climate Intelligence Unit (ECIU)
• EVA England
• Fern Consulting
• Foundation for Integrated Transport
• Green Alliance
• Greenpeace UK
• Intelligent Transport Systems UK (ITS UK)
• Institute for Public Policy Research (IPPR)
• Local Government Association
• Logistics UK
• London Cycling Campaign
• Motorcycle Action Group
• PA Consulting
• Possible
• RAC
• RAC Foundation
• Social Market Foundation
• Transport Action Network
• Transport for Quality of Life
• Transport Planning Society
• WPI Economics
• Zemo Partnership