The Government makes a combined £34 billion a year from tax on petrol and diesel along with the annual vehicle excise duty (VED/road tax) paid by all but zero-emission cars. But now a leading think-tank has warned that the Government needs to introduce more road tolls and congestion charges in a bid to raise cash to cover a shortfall as we switch to more efficient vehicles.
The influential Policy Exchange think-tank, which includes Michael Gove as one of its founder members, has published a report looking at recent trends of road use and the challenges that come with encouraging more efficient vehicles.
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It claims that the Government faces “significant fiscal implications” by encouraging drivers to switch to more environmentally-friendly forms of transport. It says the Government could lose billions of pounds a year raised through taxes as motorists switch to cars with no harmful tailpipe emissions.
“The OBR’s [Office for Budget Responsibility] 2014 Fiscal Sustainability Report suggested that fuel duty receipts could reach £40 billion per year by 2030 (based on DfT projections for road use and carbon emissions),” says the report. “However, if instead we achieve the carbon trajectory suggested by the CCC [Committee on Climate Change], then total fuel duty receipts would be far lower – reaching £31 billion in 2030 with the fuel duty escalator, or £17 billion without.
“In other words… fuel duty receipts could be £9-23 billion lower in 2030 than the OBR is currently
assuming. On a cumulative basis, this represents a loss of £60-170 billion in tax receipts between now and 2030.”
In a bid to raise the billions of pounds needed to cover the loss in tax earned through fuel duty, Policy Exchange suggests moving from the current system of taxing fossil fuels and carbon emissions to a system of road user charging. This could be charge per mile taxes or toll roads and congestion charges in cities.
VED (road tax) rates were changed earlier in 2017 making it more expensive to tax most low emission (but not emission-free) cars. Although cars emitting less than 100g/km CO2 were previously exempt from road tax, all cars except those with any tailpipe emissions are now charged a flat-rate fee of £140 a year.