► UK road pricing introduction rumoured
► Taxation shortfall as EV switch nears
► How can it be done fairly?
Rumours have been swirling over the last few weeks that Chancellor Rachel Reeves is going to announce the introduction of a road pricing scheme in the upcoming Autumn Statement. But why would such a scheme be necessary, how would it even work, and how likely is it to actually happen?
A lot of reporting on the rumours has suggested that road pricing will be introduced to help fill the £22 billion ‘black hole’ the Labour government found in the country’s finances after the election. But that’s not the case, certainly not the one that would be presented. Motoring taxes are supposed to be ring-fenced for road building and maintenance. In reality, that’s not really the case, but it’s the political justification.
The only political case that could be made for road pricing – i.e. how it would be justified to the public – is around the issue of electric cars (EVs) currently being exempt from annual vehicle excise duty (VED) charges. The exchequer loses out on a lot of money as a result, and the situation would only get worse as more EVs hit the road.
How much the UK’s motoring taxes raise
However, the reporting on road pricing has missed a crucial point – brand new EVs will be liable for VED from 1 April 2025. The exact charges that will be levied haven’t been announced yet, but all EVs will be lifted into the lowest cost bracket for cars of their age. According to the Office of Budgetary Responsibility (OBR), that will add around £1 billion per year to the £7.3 billion already raised from VED on non-zero-emission cars.
Does that negate the need for road pricing on its own? Not necessarily. EV uptake is well behind early projections – the OBR expected fully half of all new cars to be EVs by 2025, but they currently account for less than a fifth. So that prediction of an extra billion being raised may be rather overoptimistic.
And we have no idea how the volume of new car sales will evolve as we get closer to the ban on new petrol and diesel cars. That’s being brought forward to 2030, though hybrids will still be on sale until 2035. It’s entirely possible that people will hang onto their existing petrol and diesel cars a lot longer, reducing the number of new EVs sold. And that could lead to the take from VED shrinking again.
Then there’s the issue of the tax paid on fuel. 53p in fuel duty is added to the actual cost of the fuel, then there’s 20% VAT on top of that. The fuel duty alone is expected to raise £24.7 billion in 2023-24, plus whatever the VAT raises. EV owners do pay VAT on the electricity they put in their cars – 5% at home and 20% at public chargers. But that wouldn’t come close to replacing the money raised by fuel duty even as the number of EVs on the road increases.
Personally, I think we are going to see fewer new cars hit the road every year once we’re past the bans on the various types of petrol and diesel vehicles. If it even happens – I have my doubts, but that’s another story. The fact remains that the UK’s vehicle fleet is evolving quicker than ever before and it’s already causing financial headaches for the government that could become aneurysms if the way vehicles and driving are taxed doesn’t change.
How road pricing could work
Which brings us to road pricing – or pay-per-mile, as it’s often called. Let me be clear that I’m only offering a personal opinion based on my knowledge of how governments operate and what would work politically. There are several ways it could be done. The fear-mongers would have you believe the only way it could be done is what I’ll call the maximalist approach.
That would involve a grid of cameras covering every inch of the UK road network. Each car would be tracked along all its journeys and the driver sent a bill periodically. That’s never going to happen. Building the infrastructure and systems needed would cost tens, even hundreds of billions. Even if the project went completely smoothly (what are the chances of that happening?) it could take decades for the scheme to pay for itself and start actually contributing to the country’s coffers.
The maximalist scheme could also be achieved by in-car monitors. But that would still be massively expensive to set up and administer. If it wasn’t killed in the courts on data protection and privacy grounds. Which it would be.
Singapore runs a related pay-per-mile system. It’s not dissimilar to Dart Charge or France’s Liber-t toll road schemes. Gantries are placed over key roads and every car has an electronic tag. Cars are checked into and out of the roads, and the charge deducted from the driver’s account. It’s a fine idea that might work on certain roads in the UK. But a widespread scheme would have the same problems as the maximalist approach, and a limited scheme would only displace traffic onto roads that aren’t charged.
There are, of course, many other ways of charging drivers for the mileage they cover that require much less up-front investment. New Zealand, for instance, charges drivers per 1000km driven – $76 (£36) per 1000km for cars.
A similar scheme could be implemented in the UK based on the mileage covered between MOTs. It would be comparatively easy to set up and administer, and would ensure every driver is charged a fair rate for the miles they cover. But the rates would have to be set at a relatively low level to avoid a damaging political backlash, especially from the haulage industry. And it would almost certainly lead to an epidemic of clocking – people winding back the mileage on their car to avoid paying what they should. Changing cars frequently could also get around it.
But there are models that could be a suitable alternative to road/mileage pricing. In the USA, vehicle owners pay an annual (sometimes astronomical) registration fee set by the state they live in. The Dutch equivalent of VED is based on weight. In France, they pay no VED but fuel duty is higher and there are (pretty steep) road tolls to pay if you use the autoroutes.
So will we have road pricing in the UK?
If the UK is going to have some sort of road pricing scheme, I think we’re likely to see one like that proposed by a senior official in the Department of Transport, Michael Dnes, in a tweet thread he was later forced to delete (because politics). He suggested that road charging only be applied to brand new EVs. He said it could be done quite easily because the latest EVs already have the tech to track their usage. There would be legal and political issues to overcome around data protection and privacy, but it’s possible.
For what it’s worth, though, I don’t think we’re actually going to see a road pricing scheme of any sort implemented in the near future – or ever. The odd hair-brained scheme may be announced, but it’ll be withdrawn once the political and practical implications become clear.
So, what will we hear in the Autumn Statement? It’s highly likely the freeze on fuel duty will end with an increase of 5p per litre, possibly more. And I wouldn’t be surprised if a consultation on how best to tax EVs is announced.
The Labour government is happy to make itself unpopular and bloody-mindedly push ahead with politically damaging plans (witness the winter fuel payment debacle) in an effort to stabilise the country’s parlous finances. Even so, at this stage, implementing a road pricing scheme that affects every driver would be too expensive and too controversial to be worth it. But I’ve been wrong before.