Concerns about pay-per-mile road charging are growing as people begin to question how the Treasury plans to recover the duty lost from the decline in sales of petrol and diesel cars
Electric cars generate no fuel duty, so as their registrations continue to climb – up 38% year on year – and with the forthcoming zero-emission vehicle (ZEV) mandate likely to boost their sales still further, questions are being raised.
Fuel duty, which heavily dictates fuel pricing, is currently 52.95p per litre and is expected to earn the Treasury £24.3 billion in the 2023-24 financial year. That would represent 2.3% of all tax receipts and is equivalent to £867 per household and 0.9% of national income.
When could pay-per-mile road charging come in?
There’s no definitive answer to this. But based on estimates it made in 2022, the Office for Budget Responsibility (OBR) calculates that by 2026-27, fuel duty receipts will be £1.4bn lower than they are at present.
In its estimates, the OBR acknowledges the likely existence of the ZEV mandate, which is due to go live in January 2024 and which, by 2026, will require 33% of a manufacturer’s newly registered vehicles to be EVs, rising to 38% the following year and 80% in 2030, when only EVs and hybrids can be sold in the UK.
Concerned about the decline in the £35bn annual revenue generated by both fuel duty and vehicle excise duty, which won’t be charged on EVs until April 2025, the House of Commons Transport Committee urged the Treasury and Department for Transport in February 2022 to consider proposals for maintaining tax revenues.
Stressing that the “situation is urgent”, its main proposal was to replace both duties with a road pricing mechanism that uses telematic technology to charge drivers according to distance driven.
In February this year, following a series of occasionally testy exchanges during which it was criticised for its lack of engagement with the topic, the Treasury wrote to the committee emphasising that reducing the cost of living was its priority, highlighting how it had extended the temporary 12-month cut in fuel duty of 5p per litre until April 2024 as evidence.