MPs call for road use tax to replace fuel and excise duty

As EVs replace petrol and diesel cars, MPs raise concerns about impact to public finances

The Commons Transport Select Committee has called on the government to look at new taxes as people switch out of petrol and diesel-powered cars, suggesting a tax based on miles travelled.

This would use “telematic technology” to charge drivers according to distance driven, vehicle type and congestion. The committee called on the government to start an honest conversation with the public, saying that new taxes must entirely replace the existing set-up, rather than being in addition to, and also be revenue neutral. Motorists should pay “the same or less than they do currently”.

Total revenue from the existing structure of fuel and vehicle excise duty is £35 billion pounds a year. The Committee states that this is worth 1.5% of UK GDP, or 4% of overall tax receipts in 2021/22.

Neither tax is levied on electric vehicles, so as sales of these increase, the committee has warned that revenue could fall to zero by 2040.

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MPs stressed the importance of a solution, especially with regard to electric vehicle drivers to ensure they are aware they will need to contribute to road usage. “The situation is urgent. The arm’s-length body [between the Department for Transport and the Treasury] should be tasked with recommending an alternative road charging mechanism to replace fuel duty and vehicle excise duty by the end of 2022.”

In response, the Treasury said that tax changes would keep pace with changing vehicle use.

The committee also flagged that cheaper driving is likely to lead to more congestion. In September 2018, the DfT forecast that national traffic levels would rise by 51% between 2015 and 2050 as people shifted to EVs.