The UK government faces a growing challenge: how to replace the billions of pounds in revenue currently generated by fuel duties. The answer, according to campaigners, may lie in a controversial “pay-per-mile” scheme, which would charge drivers based on the distance they travel.
Despite its potential to fill the gap in public finance, this idea has long been considered politically toxic. However, with the shift to electric cars increasing in the UK, the need for a fair and sustainable road pricing model has never been more urgent.
The Revenue Shortfall: A Looming Crisis
Fuel duties on petrol and diesel vehicles currently generate around £25 billion annually for the UK Treasury. This revenue stream is expected to dwindle significantly as more drivers switch to electric cars, which do not contribute to fuel taxes. By 2033, the Treasury could face a shortfall of up to £5 billion as the number of ZEVs on the road continues to rise.
The Campaign for Better Transport has highlighted this impending crisis and called on the government to act swiftly. The CBT argues that without a new form of electric car tax, the UK could struggle to fund vital infrastructure projects and maintain road networks. The solution, they suggest, is a pay-per-mile scheme that would ensure all drivers, including those of ZEVs, contribute to the upkeep of the nation’s roads.
How the Pay-Per-Mile Scheme Would Work
Under the proposed pay-per-mile system, drivers would be charged based on the distance they travel, with rates adjusted according to the vehicle’s environmental impact. EV drivers would pay a lower rate than those with petrol or diesel cars, (similar to the current arrangement with lower BIK rates for EV salary sacrifice) reflecting their reduced contribution to pollution and carbon emissions.
The pay-per-mile model would rely on regular odometer readings to calculate charges, ensuring that drivers only pay for the miles they actually drive. This system would be simple to implement and could be integrated with existing vehicle tax frameworks. It would also be designed to be fair, with lower rates for those driving more environmentally friendly vehicles.
Public and Industry Support for the Scheme
Despite the political sensitivity surrounding road pricing, the pay-per-mile scheme has garnered significant support from both the public and industry stakeholders. According to research commissioned by the CBT, 65% of the public believes it is fair for electric car drivers to be taxed, albeit at a lower rate than those driving fossil fuel-powered vehicles. This widespread support reflects a growing recognition that all drivers should contribute to the maintenance of the road network, regardless of the type of vehicle they own.
The CBT’s proposal is also backed by a coalition of 37 transport-related organizations, including the RAC and the Confederation of Passenger Transport. These groups argue that a pay-per-mile system could help curb congestion, reduce pollution, and make public transport more attractive by discouraging unnecessary car journeys. Simon Williams, head of policy at the RAC, emphasized the need for a replacement form of taxation, warning that the Treasury must act quickly to avoid losing billions in revenue as more electric vehicles hit the roads.
Addressing Political Concerns
Introducing a pay-per-mile scheme is not without its challenges. Previous governments have shied away from road pricing due to fears of public backlash and accusations of unfairly targeting drivers. However, with the rise of electric vehicles and the corresponding decline in fuel duty revenues, the issue has become increasingly pressing.
The CBT acknowledges that the pay-per-mile scheme may face criticism from certain quarters, but they argue that the benefits far outweigh the potential drawbacks. By implementing a fair and transparent system, the government can ensure that all road users contribute to the upkeep of the nation’s infrastructure.
John is the Editor and Spokesperson for Electric Car Guide.
With over 20 years of writing experience, he has written for titles such as City AM, FE News and NerdWallet.com, covering various automotive and personal finance topics.
John’s market commentary has been covered by the likes of The Express, The Independent, Yahoo Finance and The Evening Standard.
