The UK Government could find itself with a £35bn financial hole if it doesn’t introduce an alternative motoring tax before 2030, according to a new transport committee report.
MPs have argued that by banning the sale of new petrol and diesel vehicles from 2030, the Treasury could lose two sources of income, fuel duty and vehicle excise duty, as they are not levied on electric vehicles (EV).
“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 four per cent of the entire tax-take,” said Huw Merriman, MP for Bexhill and Battle and transport committee’s chair.
“Only £7bn of this goes back to the roads; schools and hospitals could be impacted if motorists don’t continue to pay.”
The new tax, the committee said, should be based on miles travelled and vehicle type, as electric cars should be expected to pay to maintain the roads they travel on, just like fossil fuel vehicles.
According to today’s Road Pricing report, the new levy should replace the fuel duty and vehicle excise duty, avoiding to burden motorists’ pockets.
“By offering choice, we can deliver for the driver and for the environment,” Merriman added. “Road pricing should not cost motorists more, overall, or undermine progress on active travel.
“The countdown to net zero has begun. Net zero emissions should not mean zero tax revenue.”
The report received a warm welcome by the industry.
“Road pricing involves a total rethink about the way we tax motorists and incentivise transport behaviour,” said BVRLA’s director of corporate affairs Toby Poston. “We need to see [government agencies] working in close collaboration, receiving additional support in order to meet the challenges of this monumental shift.”
According to KPMG’s head of future mobility Ben Foulser, the report could lead to conversations on the future of road taxation.
“I hope that this report prompts the start of an open conversation with the public about future road charging and the role of such a demand management tool in reducing congestion,” he said.
The report comes a few days after the electric vehicles emerged as the main highlight in a dismal year for the UK’s automotive production.
In 2021, the number of all electric cars produced went up 72 per cent while hybrid and plug-in took a 17.9 per cent share of the market.
Despite the colossal growth, analysts believe the market is in its infancy and could still unlock significant investments, City A.M. reported.
“We recommend investors consider a diversified but selective approach to the auto sector,” said Mark Haefele, UBS’s chief investment office. “We favour select well-established global auto manufacturers with strong brands.