Road pricing: Act now to avoid £35bn black hole, urge MPs

Zero emission vehicles shouldn’t mean zero tax revenue, says Transport Committee. “It’s time for an honest conversation on motoring taxes,” says Committee Chair, Huw Merriman MP.

Of the £35bn raised from road taxes – four per cent of the entire tax-take – only £7bn of this goes back to the roads. This means that schools and the NHS – two of the largest areas of expenditure – could be impacted if motorists don’t continue to pay.   

The UK faces an under-resourced and congested future unless the Government acts urgently to reform motoring taxation, say MPs on the Transport Committee. 

Country faces being under-funded

A road pricing system, based on miles travelled and vehicle type, would enable the Government to maintain the existing link between motoring taxation and road usage.

In today’s new report, Road Pricing, (download below) the Committee warns that it has not seen a viable alternative to a road charging system based on technology which measures road use. 

The ban on the sale of new petrol and diesel vehicles from 2030 will result in a corresponding decline in two significant sources of Treasury revenue. 

As sales of electric vehicles increase, Treasury revenue from motoring taxation will decrease, because neither fuel duty nor vehicle excise duty are currently levied on electric vehicles.

Without reform, policies to deliver net zero emissions by 2050 will result in zero revenue for the Government from motoring taxation. The Committee urges the Government to act now to replace a potential loss of £35bn to the Exchequer. 

When replacing the existing motoring taxes, the committee calls for the Government to ensure that the new charging mechanism:

  • entirely replaces fuel duty and vehicle excise duty rather than being added;
  • is revenue neutral with most motorists paying the same or less than they do currently;
  • considers the impact on vulnerable groups and those in the most rural areas;
  • does not undermine progress towards targets on increased active travel and public transport modal shift; and
  • ensures that any data capture is subject to rigorous governance and oversight and protects privacy.  

In signalling a shift to an alternative road charging mechanism, the report calls for drivers of electric vehicles to pay to maintain and use the roads which they drive on, as is currently the case for petrol and diesel drivers. There must, however, remain incentives for motorists to purchase vehicles with cleaner emissions.

Treasury and DfT should join forces

As Departments responsible for managing congestion and maintaining the public purse, the Treasury and Department for Transport should join forces to set up an arm’s length body to examine solutions and recommend a new road charging mechanism by the end of 2022.

Chair of the Transport Committee, Huw Merriman MP, said: “It’s time for an honest conversation on motoring taxes.

“The Government’s plans to reach net zero by 2050 are ambitious. Zero emission vehicles are part of that plan.

“However, the resulting loss of two major sources of motor taxation will leave a £35bn black hole in finances unless the Government acts now – that’s four per cent of the entire tax-take. Only £7bn of this goes back to the roads; schools and hospitals could be impacted if motorists don’t continue to pay.   

“Road pricing should not cost motorists more, overall, or undermine progress on active travel”

Chair of the Transport Committee, Huw Merriman MP

“We need to talk about road pricing. Innovative technology could deliver a national road-pricing scheme which prices up a journey based on the amount of road, and type of vehicle, used.

“Just like our current motoring taxes but, by using price as a lever, we can offer better prices at less congested times and have technology compare these directly to public transport alternatives. By offering choice, we can deliver for the driver and for the environment.

“Road pricing should not cost motorists more, overall, or undermine progress on active travel”

“Work should begin without delay. The situation is urgent. New taxes, which rely on new technology, take years to introduce.

“A national scheme would avoid a confusing and potentially unfair and contradictory patchwork of local schemes but would be impossible to deliver if this patchwork becomes too vast.  The countdown to net zero has begun. Net zero emissions should not mean zero tax revenue.” 

Industry reaction

Mark Anderson, Go-Ahead Customer and Commercial Director said: “We welcome this report and support its conclusion that road pricing will be needed as fuel duty reduces. 

“For an effective transition, we want local authorities to bring forward schemes for urban charging based on both congestion and emission.   

“As the benefits of cleaner air, reduced emissions, less congestion and more attractive places emerge, we can build more support for changing the way we allocate costs to road users”. 

Michelle Gardner, Head of Public Policy at Logistics UK says:  “As the logistics industry transitions to zero tailpipe emission vehicles at pace, Logistics UK is urging the government to involve the sector as it decides the future of motoring tax; any new charging system, such as road pricing, must be fair, proportionate, and provide businesses with the certainty they need to plan their long-term investments into alternative fuelled vehicles.

“As the Transport Committee identified, road charging must replace rather than add to existing motoring taxes, and be revenue neutral to limit the financial burden placed on logistics businesses, with all investment going back into road maintenance and improvement.” 

Further information:

  • In 2020/21, the Transport Committee considered the implications of accelerating the shift to zero emission vehicles and the potential for introducing road pricing, or pay as you drive, schemes. The inquiry was completed in two parts. The first of these, Zero emission vehicles, was published in July 2021 – more information here. The Government’s response was published in October 2021 – read it here. 

Committee membership:  

Huw Merriman MP, Chair (Con, Bexhill and Battle) 

Ben Bradshaw MP (Lab, Exeter) 

Ruth Cadbury MP (Lab, Brentford and Isleworth) 

Simon Jupp MP (Con, East Devon) 

Robert Largan MP (Con, High Peak) 

Chris Loder MP (Con, West Dorset) 

Karl McCartney MP (Con, Lincoln) 

Navendu Mishra (Lab, Stockport) 

Grahame Morris MP (Lab, Easington) 

Gavin Newlands MP (SNP, Paisley and Renfrewshire North) 

Greg Smith MP (Con, Buckingham) 

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