It’s a question that won’t go away – what will the government do to replace the large amounts of tax revenue it derives from petrol and diesel fuel as the UK switches to electric cars? According to a recent report in the Times, Downing Street’s policy unit is examining new taxes and charges for motorists to make up the shortfall, which reportedly runs to £35 billion per year. These apparently include tolling of motorways as well as more sophisticated systems of road pricing.
Personally, I think this question is nothing like as urgent or important as is commonly supposed. The first thing to say is that the switchover to electric is taking place over decades. Mass-market electric cars have been around since about 2010. The last pure petrols and diesels to be sold in the UK in 2030 could still be on the roads in the 2040s. Fuel tax revenues will tail off slowly over 30 to 40 years, leaving plenty of time for a gradual adjustment. Despite recent sales growth, there are still only about 400,000 pure electric vehicles on British roads, or a little over 1% of the UK’s total car population of around 32 million. If the switch to electric cars is making a hole in the UK’s fuel taxation revenues, it must so far still be a pretty small one.
I’m also sceptical that the government can, or even necessarily should, make up all of the shortfall from declining fuel tax revenues by penalising zero-emission electric cars just as heavily as the dirty fossil-fuelled cars that they replace. If the government is serious about deterring polluters while promoting zero-carbon travel and transport, it would be more logical to give electric cars a break and instead increase taxes on other industries that have made far less progress than the motor industry in cleaning up their acts. The obvious targets are marine diesels and civil aviation, but progress on these fronts is likely to be fairly slow because any big changes would need to be co-ordinated internationally in order to be effective.
But if we assume that in the long run, declining fuel taxation revenues have to be made up at least in part from the motorist, there are plenty of other tweaks that can be made to car-related taxes and subsidies before resorting to major new initiatives like motorway tolling or comprehensive road pricing. One possible target for higher tax might be low-CO2 pre-2017 diesels that still qualify for zero vehicle excise duty, while the existing system of taxation and subsidies for electric cars could also be tweaked to reduce the drain on the Treasury. The Plug-in Car Grant is already fading away as the per-car amount is reduced, and more expensive cars no longer qualify. Fiscal incentives for electric vehicle adoption are currently much more generous for company car drivers than they are for private motorists, so perhaps there is some scope to chip away at those in the future once the adoption of electric vehicles has gained sufficient momentum.
Even when all of these options have been exhausted, I think there are still considerable obstacles to widespread tolls or road pricing. If anything, the trend has been towards the removal of tolls, with Scotland and Wales abolishing charges for major crossings, such as the Forth and the Severn. Any reintroduction of such charges is likely to be pretty unpopular. Road pricing could be even more difficult. Germany has built up a big expensive administrative machine for its Toll Collect system, and that only covers charges for trucks using major routes. How much more complicated and expensive would a system that embraced all roads and vehicles be, even with more modern technology?
And who would pay the new tolls or road charges? If everyone pays, drivers of diesel and petrol cars face a double whammy, paying both high fuel duties and the road charges. Fuel duties could be relaxed to compensate, of course, but then the pace of the electric vehicle switchover might slow down too much. If charges apply only to electric cars, a lot of EV drivers are going to be upset about that – especially those who rely mostly on rapid charging on motorways, who already pay much more per mile than those who can top up cheaply overnight at home.
So while the question of how to replace the lost fuel duties may not be going away, don’t expect anyone to rush forward to grasp the nettle for now.