The electric transition is costing the Government big, creating an annual deficit of £35bn from VED and fuel duty.
The leading contender to replace today’s emission-based VED system is a pay-per-mile system, which now has support from the Parliament Transport Committee.
In a new report, the Transport Committee has urged the Government to introduce new taxation soon to recoup losses from the electric transition.
“A road pricing system, based on miles travelled and vehicle type, would enable the Government to maintain the existing link between motoring taxation and road usage. The Committee has not seen a viable alternative to a road charging system based on technology which measures road use.”Transport Committee, Parliament
The reality is that electric vehicles won’t enjoy free taxation for much longer, and it is likely they will be taxed as much as ICE vehicles under a new system.
Free VED and no fuel duty for EVs has created an annual deficit of £35bn in the Government’s coffers, which they have to claw back.
VED based on pay-per-mile
It has been suggested that free VED will end for electric vehicle drivers in the next few years, with a new taxation system based on pay-per-mile.
Under a pay-per-mile system, your vehicle will either be tracked through GPS, or you will purchase a block of miles annually with rebates for underuse. Presumably, your mileage will be checked during annual inspections.
However, this proposal creates privacy concerns and sounds inherently complex to police, especially in an age of cybersecurity and hacking.
Despite this, it is the most popular proposal in Government.
VED based on vehicle weight
Another proposal is VED based on vehicle weight. Under this system, lighter vehicles pay less VED because they damage the roads less and have less manufacturing emissions. This sounds like a more doable option to us.
Vehicle weight is linked to vehicle emissions in ICE vehicles, so linking it to road damage and emissions with EVs makes sense.
However, it is less popular than a pay-per-mile system.
Brace for expensive taxation
If the current system of VED and fuel duty sticks, from 2030 the Government will earn £0 from passenger vehicles because of the electric transition.
Losing VED and fuel duty is not an option. As always, the Government will tax drivers as much as possible.
Mutterings within Government suggest that any new vehicle taxation system will cover both VED and fuel duty losses in one fell swoop.
“It’s time for an honest conversation on motoring taxes. 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. “Chair of the Transport Committee, Huw Merriman MP
The Transport Committee’s report recommends that the new system “entirely replace fuel duty and vehicle excise duty rather than being added.”
Reading between the lines, this means VED rates will have no impact on the price of electricity, with the new taxation covering fuel duty and VED.
Ultimately, this means a more expensive system.
Estimates suggest that if the Government was to scrap VED, thus making road use free, income tax would have to increase 6p on the pound by 2040. Personally, we’d rather pay to use the roads and keep income tax completely separate.
Whatever happens, brace yourselves. Taxation is coming.