Government advised to introduce a ‘pay by mile’ road tax

The Transport Committee have advised the Government to introduce a 'pay-as-you-drive’ scheme to plug a £35 billion hole in lost fuel duty and vehicle excise duty (VED).

It said the switch to electric vehicles (EVs) means current road tax revenues of £35bn could disappear by 2050 unless ministers act now.

The Transport Committee’s report recommends a road pricing mechanism that uses telematics technology to charge drivers according to distance driven, factoring in vehicle type and time of day.

Huw Merriman MP, chair of the Transport Committee, explained: “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 £35bn black hole in finances unless the Government acts now - that’s 4% of the entire tax-take.

“Only £7bn of this goes back to the roads; schools and hospitals could be impacted if motorists don’t continue to pay.”

Tax shortfall will accelerate from 2030

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.

The committee said that any new system of road taxation must be revenue neutral and assess the impact on high-mileage drivers, such as road hauliers and those in rural communities, and on those least able to adapt to increased motoring costs.

Merriman stressed: “Road pricing should not cost motorists more, overall, or undermine progress on active travel.”