Despite rumours, the Government says pay-per-mile is not on the road.

The road taxing alternative has been in the headlines recently as The Treasury looks to new methods of raising money.

With the rise in electric vehicles that pay no Vehicle Excise Duty, many commentators have argued that a new approach to taxing vehicles is needed to make up for the increasing shortfall in revenues.

Fuelling funds

Vehicle Excise Duty (VED) was worth £7.4 billion to the UK in 2022/23, with fuel duty just over £25bn.

However, with more electric vehicles (EVs) joining the UK car parc, the Treasury is facing a reduction in its tax take.

It was understood ministers were looking at alternatives with a possible announcement in the Budget.

Earlier this year, the Resolution Foundation think tank suggested a new ‘road duty’ for EVs.

This suggested the general road tax should be levied at around 6p per mile (plus VAT) to offset the decline in fuel duty.

Not on the map

However, a Government spokesperson has now said, “We have no plans to introduce road pricing. We are committed to supporting our automotive sector as we transition to electric vehicles to meet our legally binding climate targets.”

The clarification comes as a new report from New AutoMotive suggests that radical vehicle tax reform is unnecessary to support the country’s transition to EVs.

‘Vehicle Taxation: The Next 25 Years’ is a report reviewing the state of vehicle tax for EVs and future tax strategy.

Recommendations include ruling out pay-per-mile road pricing.

This conclusion is based on sales figures from Iceland and New Zealand.

Both countries experienced a slump in EV sales after implementing a similar policy.

With UK EV sales already flagging, this potential tax change could stall EV adoption in the UK.

Change necessary

The report suggests that the Government should look into reforming road tax.

Taxing all vehicles, regardless of age, on their efficiency rather than at a flat rate would ensure that owners of less efficient vehicles pay more, helping to make up the shortfall.

The current road tax policy, introduced during the previous administration, means that drivers of cleaner cars pay up to 10 times more than owners of older, more polluting petrol and diesel vehicles.

Adding a minimal cost for EV drivers could also aid the coffers if necessary.

The report claims that only a modest increase in fuel duty is required to ensure that petrol and diesel vehicle drivers continue to pay for their emissions.

Clearer view

Ben Nelmes, CEO of New AutoMotive, said: “It’s wrong to think that the transition to cleaner transport will take the public finances over a cliff edge.

“Electric cars aren’t a sin to be taxed but a boon for the economy. Our recommendations suggest a way forward for the Chancellor that is simple and would avoid the kind of bad outcomes seen in other countries that introduce pay-per-mile charging on electric cars.

“Our recommendations would avoid the creation of an electric car tax penalty that is currently due to come into force in April 2025, and which may prevent more people from accessing the benefits of getting a used electric car. EVs can be good for motorists and the taxman – a win-win for people and the planet.”

New AutoMotive is a non-governmental organisation (NGO).

It is working to increase the pace of the clean energy transition, focusing on road transport, one of the largest sources of greenhouse gas and pollution.