It’s time for an honest conversation about motoring taxation

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Claire Haigh, Founder & CEO Greener Transport Solutions, sets out why radical changes are needed that everyone needs to be realistic about

The pledge to reduce greenhouse gas emissions by 78% by 2035 puts the UK at the forefront of international ambition.  There’s a big difference, however, between ambition and action, and the government now needs to set out a clear path for how it will realise its targets. 

Too little progress has been made in the UK’s biggest polluting sector. Transport emissions in the UK are 4% higher than in 2013, and only 3% lower than in 1990.  Road vehicles are responsible for 90% of all transport emissions.  As hosts of the COP26 UN Climate Summit in Glasgow the UK will need a credible plan for transport.

Two central issues

Two issues are central to decarbonising road transport.  We need to accelerate the shift to zero emissions vehicles.  At the same time, some form of road pricing will be essential. Firstly, to replace receipts from fuel duty and Vehicle Excise Duty (VED) as the vehicle fleet gets cleaner. Secondly, to reduce vehicle mileage. 

The 2030 ban on sales of new petrol and diesel cars and vans will certainly accelerate the shift to electric vehicles (EVs). However, the scale of the challenge is immense.  Of the UK’s 32.9 million car fleet, under 0.5% is fully electric.  Manufacturing must scale up massively and significant barriers to take up including cost, charging infrastructure and range anxiety still need to be overcome. 

“The tricky problem to solve is how to phase in road pricing in a way which can be delivered politically and doesn’t disincentivise the switch to electric vehicles”

Serious affordability and equity issues must also be addressed.  EVs cost approximately £10,000 more than cars with an internal combustion engine (ICEs).  Households in the bottom 40% mostly buy second-hand cars. A second-hand car market for EVs rapidly needs to be developed.

2030 ICE ban: Limited impact

Crucially, the 2030 ban alone won’t bring about the necessary reductions in emissions from road transport.  Even with no new petrol or diesel cars sold by 2030, it is estimated that we will still need to reduce traffic on our roads by between 20% and 60% by 2030.  Some form of road pricing will be needed to manage demand.  Simply replacing ICEs with EVs risks locking in car dependency. 

The risk is that in lowering the cost of motoring, electrification will increase car use and congestion, and make mode shift to public transport and active travel harder to deliver. 

If we electrify the car fleet without sorting out how to transition away from fuel duty, road traffic could increase by 30%, which in addition to the 40% traffic increase already predicted, will lead to increase of 70% by 2035. 

Crucially, the 2030 ban alone won’t bring about the necessary reductions in emissions from road transport

“Some form of road pricing will be needed to manage demand.  Simply replacing ICEs with EVs risks locking in car dependency”

The tricky problem to solve is how to phase in road pricing in a way which can be delivered politically and doesn’t disincentivise the switch to electric vehicles.  We need a system that can levy tax on both ICEs and EVs fairly. It would be inequitable in the extreme if road infrastructure was financed from general taxation. This would mean non-car owners, a high percentage of them on low income, cross subsidising motorists. 

As part of its evidence to the Transport Select Committee inquiry into Zero Emissions Vehicles and Road Pricing, Greener Transport Solutions put forward proposals for a national road pricing scheme.  

Opportunity now

The 2030 ban on sales of new petrol and diesel cars provides a window of opportunity to make a mandatory change in how we pay for road use.   Government should signal that from 2030 fuel duty and Vehicle Excise Duty (VED) will be replaced by new road user charge based on distance and time, which will apply to all road vehicles.

To be politically deliverable the new road user charge should be implemented in stages.  Road users should be incentivised and encouraged to opt in, to build critical mass ahead of it becoming mandatory.  The charge should be independently determined and monitored and should not in aggregate cost more than the current system, with the potential to save users money if they travel at less congested times. 

Moving away from VED shifts the burden of taxation away from fixed annual costs towards variable costs.  This allows a closer linkage between road tax and infrastructure costs, congestion and emissions. 

A driver who travels 60,000km per annum, for example, imposes a much higher cost than a driver who only travels 6,000km per annum.  Current VED charges do not reflect this.  Shifting the burden away from ownership to use increases the propensity to walk, cycle or use public transport.

“Government should signal that from 2030 fuel duty and Vehicle Excise Duty (VED) will be replaced by new road user charge based on distance and time, which will apply to all road vehicles”

In exchange for committing to pay the new road user charge, EV car buyers could be offered a third off the price for models up to £35,000. 

Crucially this offer will also apply to buyers of second hand EVs, and drivers who scrap their old polluting vehicles of more than 10 years old can receive an additional £3,000 credit towards the cost of an EV. To ensure that they are not penalised for early adoption, existing EV owners would be given the opportunity to top up their grants if they commit to their vehicles to the new road user charge.

Households in the bottom 40% mostly buy second-hand cars. A second-hand car market for EVs rapidly needs to be developed

The new charge needs to be seen to be transparent and fair.  This can be achieved by establishing a new independent body to set motoring taxation, such as the Office of Road and Rail (ORR) in consultation with the Office of Budget Responsibility (OBR). One of the first proposals we could anticipate from the ORR/OBR is a ten-year trajectory for fuel duty increases to encourage the take up EVs and the switch to more sustainable modes. 

New levers for government to pull on personal transport

Once the new road user charge is established, and a clear trajectory for annual fuel duty increases set, the opportunity will be to use platforms such as Mobility as a Service to incentivize the switch to more sustainable modes.  

“The investment case for funding the proposed new EV grants is compelling, as Government would effectively be investing in a new revenue stream to replace the billions it will lose in fuel duty and VED”

It’s time for an honest conversation about motoring taxation.  The investment case for funding the proposed new EV grants is compelling, as Government would effectively be investing in a new revenue stream to replace the billions it will lose in fuel duty and VED.  With interest rates so low, now is the right time to invest in greening the fleet to secure a guaranteed annual revenue stream.

The proposed national road pricing scheme, combined with new EV grants offer, would deliver on key government priorities.  It would accelerate the take up of electric vehicles, support the levelling up agenda, boost manufacturing and make the UK a climate leader on the decarbonisation of transport.

Claire Haigh is founder and CEO of Greener Transport Solutions, a not-for-profit organization dedicated to the decarbonisation of transport.

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