Fuel duty ‘should be abolished’ but new car tax will charge petrol and diesel drivers more

Fuel duty: Expert suggests road pricing system

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With the ban on the sale of new petrol and diesel cars fast approaching, the Government is warning that urgent changes are needed to avoid a massive reduction in funding. Currently, car tax and revenue from fuel duty bring in around £35billion per year, but experts say this is at risk.

Electric cars will soon be the dominant vehicle type, but drivers of these vehicles do not need to pay car tax, nor do they contribute to fuel duty.

A new report, from the Social Market Foundation, calls for major car tax changes have been made as a potential respite for the Treasury.

As a solution to the issue, the report stated that drivers could be given a free mileage allowance within a national road pricing scheme.

This would allow motorists to drive a given number of miles before road pricing kicks in.

It is hoped that this would increase support for road pricing and steer the burden of motoring taxation onto higher mileage drivers that generate the greatest externalities. 

Furthermore, this would shift the burden of motoring taxation away from lower-income drivers and onto higher-income ones, given that they drive more miles on average. 

The modelling from the report shows that a road pricing regime with a uniform per mile charge and a free mileage allowance per vehicle would be slightly financially beneficial to lower income motorists, compared with the current fuel duty regime. 

For example, a revenue-neutral regime with a free allowance of 2,500 miles would leave motorist households in the bottom two income quintiles about £20 per year better off than the current fuel duty regime.

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This amounts to about £92million in aggregate.

This rises to about £40 per year with a free allowance of 5,000 miles – £188million in aggregate.

The report does acknowledge: “A key downside of going down the route of a simplified road pricing scheme is that it would limit the ability to use motoring taxation to curb congestion in parts of the country where it is particularly problematic.

“But this could be resolved by complementing a flat-rate national road pricing scheme with localised road pricing initiatives in areas where motoring-related externalities are greatest, such as cities.”

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The report used the example of London’s Congestion Charge zone as part of its modelling.

This has the benefit of only introducing complexity where the need to do so is greatest.

The report continues, saying: “To prevent lower-income households facing a disproportionate share of motoring taxes amid the transition to EVs, fuel duty should be abolished or reduced at the same time as road pricing is implemented. 

“If fuel duty is abolished, there should instead be a higher road user charge for ICE vehicles, with this surcharge set at a lower rate than the implied per-mile cost of fuel duty.”

The report also highlighted fears that traffic in England and Wales could grow massively by 2050, with some estimates showing congestion could worsen by between 17 and 51 percent.

Scott Corfe, research director at the Social Market Foundation, spoke to GB News yesterday about the report.

He said: “As we shift towards electric vehicles, we need a new form of motoring taxation.

“The Government needs to find the money from somewhere else.

“Frankly it is unfair to impose a tax burden on those who don’t drive, motorists should bear the costs of the congestion they’re creating. 

“And road pricing is the natural solution in the world of electric vehicles.”

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