Car tax pay per mile changes will be ‘essential’ to fill £40billion budget hole

Martin Lewis gives money-saving advice on VED car tax

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A new report from Greener Transport Solutions – a group overseen by academics – has warned it was key motorists transition from fuel duty to a “new way of paying for road use”. The report said the switch would be one of the “best fiscal changes“ the Government could make for UK roads.

Experts have warned there is a “fiscal imperative” to the scheme as drivers ditch petrol and diesel cars.

The Treasury is expected to lose £40billion as drivers make the switch through lost fuel duty and Vehicle Excise Duty (VED) charges.

The report said: “Road pricing is one of the best fiscal changes that any government could have made over the last generation.

“It has always been the most effective way to tackle road congestion and pollution, and now there is a fiscal imperative with the prospect of a £40 billion hole in the public finances as receipts from road taxation disappear.”

They said it was crucial a system was introduced which could levy taxes on both classic internal combustion vehicles and electric cars “fairly”.

Under current rules electric car drivers are exempt from tax charges but it is expected this will change as zero-emission cars become more popular.

However, the Greener Transport Solution’s report said it would be a “challenge” to introduce a scheme which does not turn drivers away from purchasing electric cars.

The report said: “We need to accelerate the shift to zero-emissions vehicles.

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“At the same time, some form of road pricing will be essential. Firstly, to replace receipts from fuel duty and Vehicle Excise Duty as the vehicle fleet gets cleaner (annually £28bn is received in fuel duty; £6bn from VAT on fuel, £6.5bn from VED).

“Secondly, to reduce vehicle mileage.

“Simply replacing ICEs risks locking in car dependency and increasing congestion.

“Road traffic will increase as motoring costs get cheaper unless we transition from fuel duty to a new way of paying for road use.

“The challenge is how to introduce road pricing in a way that can be delivered politically, and which doesn’t disincentivise the switch to EVs.

“We need a system that can levy tax on both ICEs and EVs fairly.

“It would be inequitable in the extreme if road infrastructure was financed from general taxation.

“This would mean non-car owners, a high percentage on low income, cross-subsidising motorists.

“There are also serious equity issues to be addressed with regards purchasing of EVs.”

Chancellor Rishi Suank is understood to have considered some form of road pricing system as a replacement to traditional car tax charges.

A pay per mile scheme was first suggested by the Labour party in 2007 but was scrapped due to opposition from drivers.

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