In 2018 -19 road vehicles raised approximately £40bn in taxation (6.3% of total government revenue). This was made up of £28bn Fuel duty, £5.7bn VAT on fuel and £6.5bn VED (Vehicle Excise Duty). This is equivalent to £1000 per licensed vehicle per year or 12p per mile.
With government’s decision to end the sale of petrol and diesel cars and vans by 2030, with all new vehicles sold after that date having a significant zero emissions capability, this could have a major impact on revenue.
Electric vehicles (EV) currently pay no fuel duty or VED. The only tax is VAT on electricity which, for many, is charged at the domestic fuel rate of 5%. Effectively, if the same vehicle usage rates are assumed, this is equivalent to £60 per year or less than a penny per mile in tax revenue.
The average trip length of vehicles in the UK is around 8.5 miles (13.5 km). The total passenger km travelled in a year is some 820bn with 89% by road, 7% by mainline rail and 4% by other modes. Rail draws an increase in mode share as distanced travelled increases. This mode share is partly effected by relative perceived costs of travel and as costs of road travel decreases rail share decreases and traffic volumes increase.
To maintain the current split of mode share between road vehicles and public transport the cost of motoring must at least remain unchanged or at best increase. It is therefore important, as petrol and diesel fuelled vehicles are phased out, to establish a method for a fairer way to charge for the use of all vehicles and especially EVs.
EVs could be charged VED, or a similar ‘fixed’ tax, all vehicles could be subject to proportional road pricing or there could be a combination of the two. Either way it is essential to maintain the overall revenue to the Exchequer if only to pay for our transport network.
It is also important to, at least, maintain the overall current cost of motoring to maintain the balance with public transport. Any reduction in vehicle tax would reduce public transport use and increase road congestion and associated pollution. Any increase in vehicle taxation would have the opposite effect.
Furthermore it cannot be assumed that just converting all vehicles to EVs is a ‘silver bullet’ to reaching Net Zero Emissions. We should now be aiming to reduce vehicular traffic. There is no such thing as a zero emissions car. There are whole life costs and impacts of EVs which have to be addressed.
As well as the energy used in vehicle construction and end of life processing, battery packs require considerable energy inputs and use of scarce materials. In addition there are pollutants from EV’s due to abrasion of tyres and brakes. It is therefore important to maintain a fiscal deterrent to using road vehicles and continue to encourage use of other modes.
The ‘Road to zero’ also has other impacts primarily related to power generation. This must be zero carbon otherwise the impact of using electricity to power vehicles could outweigh the savings from ceasing to use fossil fuel.
There are a number of potential models for road pricing ranging from conventional tolls on key routes (automatic or manual) to sophisticated system using vehicle and telemetry systems.
Virtually all modern vehicles have imbedded technology in their Engine Management Systems (EMU) to allow remote operational monitoring. For the few vehicles on the road without that capability, and specifically older vehicles, they could be exempt from the new charging system in the same way that older vehicles are exempt from MOT.
There are various ways vehicle movements can be monitored including Mobile Phone systems, GPS monitoring and ANPR technology. Different charging rates can be used depending on road type being used (Motorway, main road, local road), time of day and congestion. In addition disabled drivers, specialist vehicle and specific users can be offered discounts or exemptions. Payment can be made by an Oyster style card in the vehicle, which is topped up as necessary similar to topping up with fuel, or by regular billing similar to gas, electric and telecom bills. Finally, all this can be anonymous to overcome any privacy concerns.
The advantage of Road Pricing is that, in addition to raising tax revenue, it can also be used to influence travel habits. Some road users on low flow local roads may well pay nothing whilst a commuter on a busy or congested route pay more. Indeed the principles of this system have been used on toll road (for example M6 toll and the French peage) for many years.
However the biggest advantage of Road Pricing is the ability to change people’s perception of the cost of travelling. For far too long private car use has been perceived to be cheap and easy whilst public transport is seen as expensive and often difficult and in many cases ‘uncomfortable’ to use.
There is no doubt that in the Post COVID-19 world public transport must up its game to win back customers offering fairer fares, better access, more reliable services and greatly improved on-board facilities. However it is the mode of transport that is most likely to achieve Net Zero targets. It is therefore essential that where a viable public transport service is available, the price of travel must be used to encourage modal shift away from road vehicles.
About the Author
This post was written by David Tucker. David is Chair of the Transport Policy Unit, Federation of Small Businesses.