Government must ‘urgently reform’ road taxes to avoid £10bn shortfall created by EV transition, says think tank
The government must “urgently reform” its road taxes in order to avoid a multi-billion pound revenue shortfall created by the EV transition, says a new think tank report.
According to research from the Resolution Foundation, lower taxation of EVs, particularly the absence of a fuel duty, will create a growing £10bn “fiscal hole,” within the next decade.
The foundation argues that with EV uptake accelerating rapidly, the UK must introduce a new 6p per mile ‘Road Duty’ levy on electric vehicles (EV) as part of its road tax reforms.
“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,” Jonny Marshall, senior economist at the Resolution Foundation, said.
“But unless we modernise road taxation to reflect the cars that are on our streets today and in the future, we risk putting even more pressure on the public finances and our crowded roads.”
The research comes amid growing calls for the government to address the drop in fuel tax revenues created by drivers shifting towards climate-friendly vehicles.
A report last week from the Centre for Policy Studies, said that the Treasury would face a £25bn budget black hole in the near future as fuel duty returns dwindle, and recommended a tax-per-mile system for EV owners.
The Resolution Foundation recommends a new GPS-collected ‘road duty’ for EVs, levied at 6p per mile plus VAT, which it calculates would be enough to offset the drop in fuel duty revenues, whilst retaining incentives for Brits to go electric.
The GPS system would make it easier, they argue, to tackle congestion in large town and cities, ending the need to install expensive vehicle recognition CCTV around congestion zones.
The foundation also argues that the VAT rate on electricity from public charging points should be reduced to the same five per cent as home charging.
This would address the disparity created by the so-called ‘pavement tax,’ in which those who can access off-street parking pay less than those who rely on public charging points.
Marshall said “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.”
“Our tax system needs to keep pace with the electric vehicle transition, in a way that protects low and middle-income households.”
A spokesperson from Her Majesty’s Treasury (HMT) said, “we are making sure that motoring tax revenues keep pace with the switch to electric vehicles, whilst keeping it affordable for consumers, and have no plans to introduce road pricing.”
“With the EV transition accelerating, it’s right that all drivers start to make a fair tax contribution through changes to Vehicle Excise Duty but we continue to support the electric vehicle revolution through over £2.5 billion in incentives.”