- 98% of fuel duty revenue will disappear in the next decade with the transition to EVs
- VED tax revenue will also disappear
- The UK Government will probably announce new EV taxes in 2022, based on a pay per mile and weight class system
The UK Government stands to lose hundreds of billions of pounds in motoring taxes with the transition to electric cars.
Taxes on motoring raise around £40 billion per year, and electric cars threaten the two biggest sources of revenue: fuel duty and VED.
Money the Government can’t afford to lose
Fuel duty is currently 57.96 pence per litre for petrol and diesel. With the transition to electric cars that revenue will evaporate. Most of the UK’s motoring taxes are raised from fuel duty, so electric cars are an existential threat.
In 2020/21 fuel duty tax receipts amounted to approximately 20.90 billion pounds.
VED revenue will also disappear under current rules. Today, electric cars are free from road tax, costing exactly £0.00. If everyone transitioned to electric vehicles, the Government would lose billions in revenue.
In 2020/21 VED tax receipts amounted to approximately 6.5 billion pounds. Way less than fuel duty, but not insignificant.
EV tax proposals
Who do you think is going to pay for the public charger rollout? Who do you think will continue funding the maintenance of Britain’s pothole-ridden roads? Or the building of god-awful smart motorways?
Of course, this is to be expected. I’m not complaining about the need for an EV tax, but I would like it to be done right.
Here are the leading proposals for an EV tax:
Weight tax (tax heavy electric vehicles more)
By far, the most popular proposal is taxing heavy vehicles more than light vehicles, thus saving the little man from high VED rates.
EV tax proposals to tax heavier vehicles are backed by the public, with a Venson Automotive Solutions survey finding it the most popular option among 300 motorists.
What would this mean in practice? It would mean electric vehicles being put into weight classes that are taxed at set rates. You would pay annual VED at a set price, just like the system for petrol cars.
What is the downside?
Depending on how it is done, the heavy EV tax could split hairs and put two cars 1kg apart in different weight classes. There needs to be a clear distinction between weights to give manufacturers clear targets.
Taxing heavier vehicles sounds like a fair way to replace the current system based on emissions (which heavier vehicles produce more of).
Pay per mile EV tax
To plug the fuel duty hole, pay per mile tax is said to be under serious consideration by the Chancellor, with the price per mile set by weight class.
For example, electric cars would pay 2p per mile, vans would pay 3p per mile, and lorries would pay 6p per mile, with higher prices for artics.
What would this mean in practice? It would mean paying money for every mile you drive. People driving long distances will pay more than those who drive occasionally, which makes sense and sounds fair.
How would it work? There are a few ways the pay per mile tax could work:
- GPS tracker that tracks miles
- Recording mileage with a smartphone app
- Pre-paying for an estimated number of miles that will be driven
- Reporting mileage based on odometer readings
Personally, I like the pre-pay idea.
What is the downside?
If paying per mile requires a tracker to be fitted to electric vehicles, privacy concerns are bound to come to the fore. Sharing information with the Government doesn’t sound too appealing, especially when they are tracking you.
Thinking about pay per mile EV tax logically, it’s just a way to replace fuel duty, since fuel duty is practically a pay per mile tax anyway.
Let’s wait and see what happens. The Chancellor is expected to announce new EV tax rules in 2022 with a ten-year plan, aligned to the 2030 petrol and diesel ban.