MPs say new tax needed as electric car numbers rise

A cross-party group of MPs has told the government to act now to avoid a £35 billion "fiscal black hole" as the uptake of electric cars reduces tax revenue. The House of Commons Transport Select Committee says a road pricing system based on distance travelled and vehicle type would reduce the shortfall as petrol and diesel cars are phased out.

In a report, the select committee, which comprises a group of MPs from all corners of the House of Commons, told the government the ban on the sale of new petrol and diesel cars from 2030 would cause a “decline in two significant sources of Treasury revenue”. With no income from fuel duty or Vehicle Excise Duty, which is currently not levied on zero-emission cars, the committee said policies to cut emissions would also cut the Treasury’s revenue.

Instead, the committee has suggested motorists should be taxed on the basis of the miles they cover and the type of vehicle they drive. However, the committee’s report pointed out that motorists should not pay more overall under a road-pricing scheme, but the system should also avoid any moves that “undermine” steps to encourage walking and cycling.

“It’s time for an honest conversation on motoring taxes,” said Huw Merriman, the chair of the Transport Committee. “The government’s plans to reach net zero by 2050 are ambitious. Zero-emission vehicles are part of that plan. However, the resulting loss of two major sources of motor taxation will leave a £35 billion black hole in finances unless the government acts now - that’s four per cent of the entire tax-take. Only £7 billion of this goes back to the roads; schools and hospitals could be impacted if motorists don’t continue to pay.

“We need to talk about road pricing. Innovative technology could deliver a national road-pricing scheme which prices up a journey based on the amount of road, and type of vehicle, used. Just like our current motoring taxes but, by using price as a lever, we can offer better prices at less congested times and have technology compare these directly to public transport alternatives. By offering choice, we can deliver for the driver and for the environment. Road pricing should not cost motorists more, overall, or undermine progress on active travel.

More on vehicle tax in the UK:

Electric cars save drivers £900 in tax during the first year alone

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“Work should begin without delay. The situation is urgent. New taxes, which rely on new technology, take years to introduce. A national scheme would avoid a confusing and potentially unfair and contradictory patchwork of local schemes but would be impossible to deliver if this patchwork becomes too vast. The countdown to net zero has begun. Net zero emissions should not mean zero tax revenue.”

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