Campaign for Better Transport Calls for New EV Tax to Address Fuel Duty Revenue Gap

As the UK accelerates its transition to electric vehicles (EVs), the Campaign for Better Transport is urging the government to introduce a new tax on EVs to address a significant revenue shortfall in fuel duty. This initiative comes as the country moves away from petrol and diesel-powered vehicles, a necessary step towards a sustainable future. However, this transition poses a challenge: the decline in fuel duty revenue, which is critical for funding public services and infrastructure.

The Proposal for a ‘Pay Per Mile’ Tax

In a recent letter to Chancellor Rachel Reeves, the Campaign for Better Transport proposed a ‘pay per mile’ tax on electric vehicles. This tax aims to fill a projected £5 billion revenue gap by 2033, resulting from the increasing adoption of zero-emission vehicles. Silviya Barrett, a representative from the campaign, emphasized the urgency of the situation, stating, “The new Chancellor faces a looming black hole. She can avoid it in a way that is fair and that garners broad public support. But she should start now, as this issue will only get more pressing.”

Understanding Fuel Duty Tax in the UK

Fuel duty is a tax imposed by the UK government on the sale of petrol and diesel, generating billions of pounds annually. This revenue is vital for funding public services, including road maintenance and infrastructure development. As of 2024, the fuel duty rate stands at 52.95p per litre, although this can fluctuate based on government policies.

Electric vehicle drivers currently enjoy an exemption from fuel duty, as their vehicles are powered by electricity rather than fossil fuels. This exemption is part of the UK Government’s broader strategy to promote cleaner transport options and reduce greenhouse gas emissions. However, as the number of EVs on the road continues to rise, the government faces the challenge of replacing the revenue lost from fuel duty.

The Case for a Pay-Per-Mile Tax

The Campaign for Better Transport argues that a pay-per-mile tax on electric vehicles could be a straightforward solution to the revenue gap. This system would charge EV drivers based on the distance they travel, ensuring that they contribute fairly to the maintenance of road infrastructure. The campaigners suggest that a transition period should be implemented to allow the industry to adapt, and existing EV drivers could be exempted initially to encourage further adoption of electric vehicles.

Barrett noted, “It should be cheaper to drive a zero-emission vehicle than a more polluting vehicle, but it’s only fair that these drivers should pay a share, and a pay-as-you-drive model can achieve this.”

Public Support for EV Taxation

Research conducted by the Campaign for Better Transport indicates that a significant majority of the public supports the idea of taxing zero-emission vehicle drivers at a lower rate than those driving petrol or diesel vehicles. Approximately 65% of respondents were in favor of this approach, while only 19% opposed it. This indicates a growing recognition of the need for a fair taxation system that reflects the changing landscape of transportation.

The Campaign for Better Transport leads a Pay-as-you-drive Forum, comprising 37 organizations from various sectors, advocating for a fair contribution from zero-emission vehicle drivers to address the declining fuel duty revenues.

Industry Perspectives on EV Taxation

Industry leaders have echoed the call for a new taxation system to replace the dwindling fuel duty revenue. Ann Carruthers, President of ADEPT, highlighted the necessity of addressing the funding gap as the transport system decarbonizes. She suggested that a well-designed pay-as-you-drive EV tax could provide sustainable funding for road infrastructure while promoting greener travel choices essential for achieving net-zero targets.

Simon Williams, head of policy at the RAC, also stressed the importance of replacing fuel duty with a fair taxation system as electric vehicle adoption increases. He stated, “With fuel duty revenue set to fall further as more electric vehicles come onto the road, a replacement form of taxation needs to be introduced to avoid losing billions.”

Williams further emphasized that any new taxation system should be simple and fair for both conventional and electric vehicle drivers. He proposed that a pay-per-mile system could be structured based on vehicles’ emissions, with EV drivers paying the least and more polluting vehicles paying the most.

Conclusion: Balancing Fair Taxation and Environmental Goals

As the UK continues to embrace electric vehicles, the debate surrounding the maintenance of essential public funding intensifies. Balancing the need for fair taxation with the encouragement of zero-emission vehicles is crucial for the country’s sustainable future. By implementing a well-considered EV tax system that aligns with environmental goals, the UK can ensure that road infrastructure remains adequately funded while continuing to incentivize the adoption of cleaner transport options.

The call for a new EV tax reflects a broader recognition of the changing dynamics in transportation and the need for innovative solutions to address the challenges posed by the transition to electric vehicles. As discussions progress, it is clear that the future of transport in the UK will require collaboration between government, industry, and the public to create a sustainable and equitable system for all road users.