Drivers could see fuel duty axed in favour of pay-per-mile measures in the upcoming Budget as experts warn it will “one day be a dead tax”.
Experts from financial giant PwC warned that new tax measures could be on the horizon as Chancellor Rachel Reeves faces challenging spending decisions and motoring costs.
Due to these changes, the Treasury will need to look at creating more revenue from motoring which many have predicted as being announced in the Budget.
Suggestions include that fuel duty, Vehicle Excise Duty and Insurance Premium Tax could see changes, as well as other motoring taxes.
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Drivers could face new taxes in the near future despite backlash from motorists
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Grant Klein, Transport Leader at PwC UK said: “There’s a circle that’s hard to square as we move as a nation to electric vehicles.
“On the one hand, net zero objectives point to needing to incentivise the purchase of EVs; and on the other, there’s an impending ‘boiling frog’ black hole from a reduction in the fuel duty generated from the purchase of petrol and diesel as more people switch to EVs.
“Policy options for the Government include a step towards a fuel duty alternative for EVs, similar to that seen in Iceland and New Zealand, which could see users required to self-report mileage and pay digitally.”
He explained that this would match Iceland’s introduction of a fuel duty alternative when EV uptake reached 17 per cent across the country. If the UK were to do something similar, the Government would need to act by 2028-29.
Meanwhile, Caroline Bevan, ESG Tax Leader at PwC UK, stated that fuel duty will one day be a “dead tax” particularly as the UK increasingly transitions to electric cars, with one in two cars expected to be an EV by 2035.
But Bevan noted that while EVs are beneficial for the environment, the vehicles will “cause headaches for tax revenues as it generates £25billion a year in public funds”.
She said such changes can’t be done overnight both “operationally and technologically”, although the Budget could be a good place to start with such a scheme.
Recent research by the group found that the UK Government will face a potential £9billion loss through tax revenues by 2030 and a possible £27billion loss by 2040, equivalent to halving the defence budget.
“The Chancellor may want to think about [the] long-term sustainability of tax revenues, and how increasingly dated taxation mechanisms can be replaced” she explained.
A report by The Electric Car Scheme found that if new road prices were to be announced in replacement of VED, motorists could face up to 15p per mile cost hikes.
Thom Groot, CEO and co-founder of The Electric Car Scheme, explained how the potential introduction of a pay-per-mile system represents a “significant shift” in how Britons view road taxation.
The system could also be seen as a fairer approach to taxation forcing costs to be closely aligned to how much a driver actually uses the road rather than based on emissions.
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