Should motorists be taxed based on how far they drive? Fresh calls for pay-per-mile scheme that could cost the average driver £444 a YEAR
- Will the Chancellor bring in 'unfair' pay-per-mile tax to block VED hole from EVs?
A pay-per-mile road tax scheme is again being mooted in a move that would meaning those living in remote areas and most reliant on their cars would be stung hardest by the rules.
There have been growing calls in recent weeks for Chancellor Rachel Reeves to introduce a new road pricing scheme to replace traditional Vehicle Excise Duty (VED).
The average motorist would likely be hit with costs of £444 a year, while those living in rural parts of the country covering 10,000 miles annually would face bills in the region of £600.
Supporters of the notion say it would help fill the £22billion black hole in the country's finances. However, the scheme is likely to be met with fierce opposition from those who depend on their cars most.
There's mounting speculation that the Treasury could bring in pay-per-mile tax instead of VED in an attempt to plug the road taxation black hole as the switch to EVs ramps up
Pressure is said to be mounting on the new Chancellor of the Exchequer to announce details of the scheme in the October Budget, after it was revealed the Treasury was keen for the former government to introduce the highly controversial measure.
In an interview with the Telegraph, former Chancellor Jeremy Hunt's chief adviser Adam Smith – who worked under Mr Hunt from 2022 to 2024 – said Downing Street staff under his time wanted to 'start preparatory work on a road pricing scheme' because of declining fuel duty coffers.
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The policy was popular off the back of the Transport Committee recommending the introduction in a 2022 report, with Treasury officials 'eager' to bring in the tax change as the switch to EVs ramped up.
The Treasury rakes in around £25billion a year in fuel duty and £8billion from VED.
With more EVs entering the roads – there's now over a million in use in the UK – fuel duty will soon be a far less lucrative revenue for the Treasury.
However, opposers to a road pricing scheme will rightfully point out that fuel duty is already a tax-per-mile scheme, with drivers paying 52.95p (inclusive of the temporary 5p cut) on every litre of petrol and diesel they pump into their cars.
And moves have already been made to plug the tax void left by EVs with changes to VED from seeing zero-emissions vehicles charged at the same rate as the least polluting cars with petrol and diesel engines.
The Government will start charging EV owners Vehicle Excise Duty from April 2025 to maintain the stream of Treasury revenue from car tax as more motorists shift to electric models
Despite the eagerness from Conservative peers, the Government shied away from introducing pay-per-mile road pricing because of how unpopular it could be with voters.
Accounting firm PwC estimates the government risks losing £9billion of fuel tax revenues by 2030, based on the uptake of EVs before the end of the decade.
This could be accelerated, however, with Labour wanting to bring the ban on new petrol and diesel cars forward 2030 after the Conservatives postponed it to 2035.
As such, there could be a shortfall in Treasury revenue stream greater than £9billion-a-year for the Chancellor to recover in the coming years.
Mr Smith wrote in the Telegraph: 'Rachel Reeves may be prepared to take on some of these big long-term challenges. The Treasury will certainly be advising her not to freeze fuel duty, increase the rate by 5p and start work on road pricing.'
It's already expected Mrs Reeves will introduce a fuel duty hike in the forthcoming Budget as Labour tiptoed around the subject during the election campaign.
Currently the fuel duty freeze is providing motorists a £1billion tax relief.
The AA told us that pay-per-mile resurfaces 'every decade or so' but the 'reality is that the transition to zero emission vehicles will leave a big black in the Treasury's coffers'.
While the organisation 'doesn't have a hard position on a mileage system' it s concerned about how hard-pinched motorists will afford it currently.
President Edmund King said: 'The AA currently thinks it would be difficult due to cost of living and the need to encourage the take-up of electric vehicles.'
The Government has yet to make an announcement on road tax but is expected to in the near future.
Pay-per-mile road tax would see drivers pay tax based on the number of miles they drive. It would replace the current VED system or 'road tax' which taxes a vehicle depending on vehicle type, age, fuel type and crucially CO2 emissions
Pay-per-mile – what is it?
As the name suggests, pay-per-mile road tax would see drivers pay tax based on the number of miles they drive.
The further you drive, the more you pay.
It would replace the current VED system or 'road tax', which taxes a vehicle depending on vehicle type, age, fuel type and - crucially - its measured CO2 emissions. Higher polluting vehicles are taxed a higher rate of VED.
Iceland and New Zealand already have a pay-per-mile tax policy in place.
How much could it cost motorists and how would it be collected?
Last year, the Resolution Foundation think tank suggested a figure of 6p per mile (plus VAT) to offset the fall in Fuel Duty.
With the average UK car mileage being 7,400 miles, a 6p-a-mile duty would see the average motorists having to fork out £444 per year.
The existing annual standard VED rate for modern petrol and diesel cars is £190.
The Foundation said this needed to be done alongside 'maintaining incentives to switch with EVs remaining 20 per cent cheaper to run than non-EVs'.
The Foundation recommended using GPS data that new EVs are already built with, and paying via monthly direct debits to minimise disruption to motorists.
'A GPS-collected system of Road Duty could also help tackle a second big net zero and transport challenge facing Britain – decongesting our roads', the think tank proposed.
How popular or unpopular would it be?
Go Compare surveyed 2,000 drivers in December 2023, with just over half (53 per cent) voting against a pay-per-mile tax system.
Unsurprisingly, 52 per cent said they opposed the scheme because they felt it would be unfair to vehicle owners who are more reliant on their motors - especially those living in rural and remote areas.
Young motorists were the most against it – 60 per cent of 18 to 24-year-olds felt this way.
Contrastingly, among the quarter (26 per cent) of respondents who'd welcome pay-per-mile, it was mainly older drivers aged 55 and over (one third).
Of the 26 per cent who said they'd back the switch, 76 per cent thought it would make for a fairer system.
The next most popular reason was the positive effect it would have on minimizing unnecessary car usage, reducing congestion and emissions – 59 per cent voted for this.
Some 44 per cent said they'd be pro it because they'd pay less tax.
While this might seem fair to some drivers, there are stark warnings about how unfair it will be for rural drivers who have no choice but to drive further.
While the average car driver in the UK covers around 7,400 miles per year, those living in rural parts of the country are more reliant on their vehicles and travel further. The latter would therefore be stung hardest by a pay-per-mile scheme
Warnings against pay-per-mile and the disparity it could cause
Social Market Foundation's 2023 report Getting the measure of transport poverty found that transport is the single largest household expense (excluding mortgage repayments) in rural communities.
In contrast it's only second for urban families.
The report stated that transport costs contribute significantly to poverty in rural areas, with the average car journey in the UK costing £6.20, compared to £2.41 for the average single bus fare.
The London Assembly passed a motion to oppose a London-wide pay-per-mile scheme back in March.
Nick Garratt who proposed the original motion said 'he was please that the Assembly has stood in firm opposition' to the road change because it protects 'everyone who relies on their vehicle, including van drivers and people in Outer London. A pay-per-mile scheme could unfairly hit all those driving in London.'
A 2023 report found that the average car journey in the UK costs £6.20 compared to £2.41 for the average single bus fare
Edmund King, AA president, said: 'If in the future a system is introduced, it must have incentives for those dependent on their cars in rural areas, disabled drivers, and shift workers.
'The scheme should be overseen by an independent body and should not aim to raise more revenue than is currently raised from drivers.
Any scheme would need the support of drivers and should give them other benefits, otherwise it could backfire.'
However the RAC is in favour of the system, with head of policy Simon Williams telling us: 'Our research suggests that drivers broadly support the principle of 'the more you drive, the more tax you should pay'.
'Whatever any new taxation system looks like, the most important thing is that it's simple and fair to drivers of both conventional and electric vehicles.'
The RAC believes a pay-per-mile system would stop the Treasury 'losing billions' as more EVs come on the roads but stress it needs to be 'set up according to vehicles emissions with EV drivers paying the least to further encourage take-up and 'gas guzzlers' paying the most.'
