'Switch to electric cars will cause £30BN tax black hole'

Switch to electric cars will leave a £30BILLION tax black hole that will have to be filled by road pricing, Tony Blair’s institute says

  • Tony Blair Institute For Global Change warned of gap in revenue from vehicle tax
  • Think-tank says drivers would need to pay per mile spent on road to cover losses
  • Report estimates by 2040 Treasury stands to lose as much as £260bn in revenue
  • Electric car owners currently pay 98% less in tax than petrol or diesel car owners

Billions of pounds of new road taxes are needed to plug the tax shortfall set to be created by the switch to electric cars, a new report warns today.

The study, by the think-tank led by Tony Blair, argues that ‘road pricing’ is needed to replace the more than £30billion in revenue generated annually from motoring taxes.

This would see drivers pay per mile or per minute for the amount of distance or time spent on the roads.

The report, by the Tony Blair Institute For Global Change, urges ministers to reveal how they plan to replace current motoring taxes within a year, warning it may become ‘politically impossible’ if they delay too long.

But a road pricing scheme was rejected by motoring groups last night, with the AA saying it was ‘likely to backfire’ because many drivers will see it as a ‘poll tax on wheels’.

The AA is calling for motorists to be given a guaranteed free miles allowance before any charges kick-in.

The Tony Blair Institute For Global Change has warned that billions of pounds of new road taxes are needed to plug the tax shortfall set to be created by the switch to electric cars

The report estimates that, by 2040, the Treasury stands to lose as much as £260 billion in revenue without any new taxes.

This would be due mainly to the fall in receipts from fuel duty and vehicle excise duty (VED), both of which fully-electric drivers are exempt from.

Last month,  the Government unveiled its transport decarbonisation plan, but failed to explain how it will plug the financial gap created by the move away from fossil fuels.

It simply said it will ensure ‘revenue from motoring taxes keeps pace’ with the switch to electric vehicles, in order ‘to ensure we can continue to fund the first-class public services and infrastructure that people and families across the UK expect’.

But the Tony Blair Institute report warns that delaying too long also threatens to undermine the Government’s ‘levelling up’ agenda.

This is because wealthier people in the south are more likely to be able to afford the higher upfront costs of electric cars, but would be paying next to no tax to use them.

It would leave motorists in poorer parts and reliant on fossil fuels ‘picking up the tab’ for maintaining the roads network.

Drivers of electric cars currently pay about 98 per cent less in taxes than owners of petrol or diesel cars.

Report urges ministers to reveal how they plan to replace current motoring taxes within a year

The average driver currently spends around £1,100 a year on fuel and VED, of which around £750 is tax.

But electric vehicle motorists pay only £320 a year, of which around £20 is tax.

The report warns: ‘This is currently politically sustainable – perhaps because electric vehicles are more expensive to buy, and still relatively few in number.

‘But in a scenario where there are around 3million by 2025, and 10million by 2030, principally owned by wealthier drivers and directly causing increased congestion, this will surely be the subject of considerable political backlash on the basis that vehicle taxation is fundamentally unfair.’

It adds: ‘If the government does not act quickly to develop a clear direction of travel, more and more road users will have purchased electric vehicles on the implicit promise that they will not be taxed.

‘Trying to introduce a new tax system later will likely be politically impossible. So the time to act is now.’

Failure to introduce a new regime could also spark a dramatic increase in congestion, the report warns, as the lack of any motoring taxes would encourage more people to drive.

It estimates the cost of congestion to the UK economy could increase from £59.5billion to £121.5billion.

Drivers of electric cars currently pay about 98% less in tax than owners of petrol or diesel cars

The amount of time wasted by the average driver in traffic could also increase by nine hours, to 32 hours a year.

It says ministers should consider four road pricing options:

  • ‘flat rate per mile’, where drivers are charged a fixed amount for each mile they drive
  • ‘Geographic or toll-based charging’, with costs varying depending on how congested certain routes are
  • ‘time-based rate’, where motorists are charged per minute
  • ‘dynamic rate’, where charges can vary depending on the road being used and the time of day

The Government has announced that sales of new diesel and petrol vehicles are to be banned by 2030.

It has reportedly left Chancellor Rishi Sunak concerned that the shift could leave a black hole in the public finances.

Edmund King, president of the AA, said: ‘This report, although well-intentioned in not wanting to alienate drivers, still falls into the ‘road pricing’ trap.

‘Even referring to it as ‘road pricing’ means it is likely to backfire with the public.

‘History has shown that the straight concept of ‘road pricing’ will never be popular with drivers and is often described as a ‘poll tax on wheels’.

‘I discussed this with Tony Blair in Downing Street in 2006.’

The AA is calling for all motorists to be given 3,000 free miles, with rural or low income drivers potentially getting a top-up of 1,000 extra miles.

Per mile charging would only begin after these are used up, a system Mr King said would be ‘much more progressive’.

Howard Cox, founder of campaign group FairFuelUK, said: ‘Road pricing will go down like a lead balloon with the world’s already highest taxed drivers.

‘Tony Blair’s Institute should back the call for the 2030 ban on new diesel and petrol car sales to be scrapped.

‘With that sensible outcome, fuel duty will not need to evaporate so fast in the uncalled-for thrust to go electric.’ ENDS

The Department for Transport was contacted for comment.

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