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UK News When driving takes its toll: 'Pay-by-the mile' schemes back on the agenda as Chancellor looks to plug £40bn 'green' motoring tax black hole

02:00  17 september  2021
02:00  17 september  2021 Source:   thisismoney.co.uk

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a train is parked on the side of a road: MailOnline logo © Provided by This Is Money MailOnline logo

Start counting down. If you think national pay-as-you-drive road tolls are but a distant glint in the eye of Chancellor Rishi Sunak and the Treasury, think again.

It is an idea that is about to come staggering back down the road as surely as a drunk sniffing a whisky distillery.

Mr Sunak and his Treasury team are said to be ‘very interested’.

Pay-by-the-mile road tolls, or ‘road pricing’, is an idea that was killed off by public opposition around 15 years ago.

a train is parked on the side of a road: ( © Provided by This Is Money (

But it is now set to make a comeback. And this time it’s most likely going to stay. Here’s why.

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The controversial decision by the Conservative government and Transport Secretary Grant Shapps to ban the sale of all new petrol and diesel cars by 2030 is causing sleepless nights in the Treasury.

This revolutionary switch to zero‑emissions ‘green’ vehicles threatens to leave a vast £40 billion-a-year deficit in Treasury coffers.

This is the cash it rakes in from taxing UK motorists’ cars through annual Vehicle Excise Duty (VED), and via the fuel duty plus VAT (essentially a tax on a tax) it receives from drivers filling up at petrol and diesel pumps.

So when everyone is driving pure electric cars — which are currently exempt from VED, and often see buyers receive a taxpayer-funded plug-in car subsidy of £2,500 — the Government’s lucrative tax well will dry up.

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Funding the future

The Government’s ambitions for a greener nation producing ‘net zero’ carbon are driving the details of road pricing.

The House of Commons Transport Select Committee is set to report on the road-pricing element of the debate in October or November — close to when Sunak delivers his Autumn Budget (October 27).

Basic road tolls have been around since at least Roman times, through the era of 18th-century turnpikes to modern river and tunnel crossings, and the privately built M6 Toll, right up to the London Congestion Charge and ever-expanding Ultra Low Emission Zone (ULEZ).

But a national system of road pricing is on a different scale.

House of Commons Transport Select Committee chair, Huw Merriman, said: ‘A consequence of the transition to electric vehicles is a potential £40 billion annual fiscal black hole, due to the reduction in fuel duty and VED. Something will have to change.’

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His committee has taken evidence on whether ‘radical road pricing’ or ‘pay-as-you-drive’ schemes can offer a solution.

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The practicalities

Keep your eye on National Highways, which could easily become a Trojan horse for overseeing road pricing plans.

Controversial ‘smart motorways’ arguably make road pricing even easier, embracing much of the tracking tech needed to check on cars’ movements.

There’s also a question about how sophisticated a system needs to be. The Holy Grail is one which tracks and charges drivers by the mile, time of day, and level of congestion — costing more at peak times and less off-peak — and sends you a monthly bill.

But The AA and the Institute for Fiscal Studies (IFS) argue that it’s better to start off with a simple-to-administer system which charges a flat rate. Privacy is a huge issue, too. Critics point to concerns over civil liberties, data security and the Government’s ability to constantly track drivers’ movements.

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That is what he stands to lose from annual Vehicle Excise Duty (VED) and from the duty plus VAT the Treasury receives from drivers filling up at the nation’s petrol and diesel pumps.

Fuel duty is currently levied at a flat rate of 57.95p per litre for both petrol and diesel, while VAT at 20 per cent is then charged on both the price of the product and on the duty.

Currently, the average price of unleaded is around 135.5p per litre — of which nearly 60 per cent is tax.

Vehicle Excise Duty (VED) is constantly being tweaked, but broadly speaking is based on levels of CO2 emissions.

There was a time when what is still colloquially known by many as ‘road tax’ really did go directly towards maintaining the roads. But that link quickly ended and the money raised went into the general taxation pot.

However, recently the VED element has again (since 2020/21) been ring-fenced — or ‘hypothecated’ to give it the official term — and is used to maintain and improve the nation’s potholed strategic roads.

If this sounds familiar, you’re right. Tony Blair’s ‘New Labour’ government spent its second term pursuing road pricing under then Transport Secretary Alistair Darling. But the issue proved politically unacceptable when 1.8 million people petitioned for the idea to be scrapped. However, the abolition of new petrol and diesel cars, a ‘decarbonisation’ of the economy, and the impact this will have on tax takes have changed the game.

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Supporters of road pricing say ministers must not leave it too late to make the case this time or they’ll be accused of waging another ‘war on motorists’ and fail.

On the edge

The IFS says we are approaching a ‘tipping point’ where ‘green’ electric car drivers — already used to paying little or no tax for their motoring — will resent future taxes.

AA president Edmund King has suggested giving drivers an allocation of free ‘road miles’ beyond which they would pay each year.

He says: ‘Mileage can be checked at the MOT or from a telematics device.

‘To avoid fraud the driver would pay an estimated monthly amount that can be reconciled with the MOT mileage rather like the electricity companies do.’

A recent report by the Tony Blair (yes, him again) Institute for Global Change, called Avoiding Gridlock Britain, repeats the Darling mantra of nearly two decades ago that ‘doing nothing is not an option — economically or politically’.

Suggesting there will be three million electric cars on UK roads by 2025 and 25 million by 2035, it concludes: ‘We have, in the next couple of years, a once-in-a-century opportunity to address these problems through the introduction of road pricing.

‘Such a scheme could slash congestion, maintain tax receipts and mitigate any unfairness.’

My own tip is to listen out for the words ‘revenue neutral’. It’s meant to signify that motorists will be no better, but also no worse, off on average with road pricing than they would have been had fuel duty continued.

When you hear ministers making that argument, you know they’re really serious and it’s on its way.

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And if you think nine years to 2030 is still a long time away, just think — nine years ago we’d just finished celebrating the 2012 London Olympics.

So ask not for whom the roads toll, they toll for thee.

Lean, mean, green Fiesta machine

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And the refreshing mid-cycle spruce-up comes just in time, too, as the car that took the top sales crown in 2019 and 2020 has, this year, been chasing the tail of its arch-rival, the Vauxhall Corsa.

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Priced from £16,620, order books for the new Fiesta range have just opened for delivery in early 2022.

They offer a bolder exterior with sharper new styling tweaks, enhanced technology and mild hybrid powertrains to make the compact hatchback ‘future-ready’, says Ford.

Fans of hot hatches can enjoy the new Ford Performance-developed Fiesta ST priced from £22,600 to £25,255.

Powered by a 200 horsepower (hp) 1.5-litre EcoBoost engine, the Fiesta ST offers acceleration from zero to 62 mph in 6.5 seconds up to a top speed of 143 mph.

For more eco-friendly driving, the firm’s electrified Ford EcoBoost Hybrid 48-volt mild hybrid range — priced from £18,860 to £21,630 — helps save fuel and reduce emissions.

The new Fiesta’s one-litre EcoBoost Hybrid engine is available with 125 hp and 155 hp power outputs, combined with a six-speed manual transmission offering 48 mpg and CO2 emissions from 111 g/km.

The 125 hp EcoBoost Hybrid is also available with a seven-speed, Powershift dual-clutch automatic transmission, delivering 45.2 mpg fuel efficiency and 117 g/km CO2.

Ford’s standard one-litre EcoBoost engine comes with 100 hp and delivers 45.2 mpg and 118 g/km CO2 with a six-speed manual transmission.

Trim level variants cover Trend, Titanium, ST-Line and Active, plus new upmarket Vignale packs that ‘amplify’ the top three trims with luxury specifications.

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