Verónica Castro-AllendeThe UK government faces increasing pressure to implement a new pay-per-mile EV tax on electric vehicles (EVs) as fuel duty revenues decline. Campaign for Better Transport advocates for this EV tax, projecting a £5 billion revenue shortfall by 2033 due to the shift from gasoline and diesel to zero-emission transportation. This move is critical to sustaining public services and infrastructure funding, traditionally supported by fuel duty, which is currently levied at 52.95p per litre. While the government promotes electric vehicles to reduce greenhouse gas emissions and improve air quality, campaigners argue that a balanced approach is needed to ensure that road infrastructure remains funded. A pay-as-you-drive system for zero-emission vehicle tax could offer a solution, with exemptions for current EV drivers to ease the transition. Industry leaders like ADEPT and the RAC support the idea, emphasizing that any new tax should be simple, transparent, and promote cleaner transportation. As the UK moves towards achieving net-zero goals, the debate surrounding the EV tax system highlights the need for a responsible yet incentivizing approach to taxation, ensuring sustainable funding for roadways without deterring the adoption of electric vehicles.
The UK government is being asked by the Campaign for Better Transport to introduce a fresh Pay-Per-Mile EV Tax to fill a “black hole” in fuel duty revenue.
The campaigners have written to Chancellor Rachel Reeves to suggest a “pay per mile” tax on electric vehicles to close the revenue gap.
They claim that the UK is making the necessary steps to transition from gasoline and diesel to zero-emission transportation, which is crucial for a green future, but that this will result in a significant decline in fuel duty revenue.
They project that this will result in a £5 billion decline in revenue by 2033, which they believe can be bridged by introducing a new electric vehicle tax.
Silviya Barrett of Campaign for Better Transport , explained:” The new Chancellor faces a looming dark hole.
She can avoid it in a way that is honest and popular,”” she says. But she should start then, as this issue will only get more pressing.”
The role of fuel duty tax in UK transport
The government levies a tax on the sale of fuels like gasoline and diesel in the UK. It’s a considerable revenue source, raising billions of pounds yearly, and it is used to fund public services and infrastructure, including road maintenance.
The fuel duty rate for gasoline and diesel is 52.95p per litre as of 2024, although this may change depending on the type of fuel and any government-imposed momentary measures or freezes.
Because their vehicles do never use gasoline or diesel, electronic vehicle drivers do not have to pay fuel duty. Rather, EVs are powered by electricity, which is not subject to fuel duty.
The exemption for EVs is part of the UK Government’s broader strategy to encourage the adoption of cleaner, more economically friendly transport.
By converting from fossil fuels, the goal is to lower greenhouse gas emissions and improve air quality.
But, as the number of electric vehicles on the road increases, discussions are ongoing about how to make up for the lost fuel tax revenue, possibly through new taxes or fees aimed particularly at electric vehicles.
The campaigners claim a charged fee would be the most straightforward way to go about replacing zero-emission vehicles per mile.
They add that having a sufficient transition period would help the industry get ready, and that exempting existing EV drivers would encourage the adoption of electric vehicles prior to the implementation date.
” It should be cheaper to drive a zero-emission vehicle than a more polluting vehicle, but it’s only sensible that these drivers should pay a share, and a pay-as-you-drive model can achieve this,” Barrett added.
Industry support for the EV tax
Only 19% of the population oppose taxing zero-emission vehicle drivers at a lower rate than those operating gasoline or diesel vehicles, according to research conducted by Campaign for Better Transport.
A Pay-as-you-drive Forum involving 37 organizations from diverse industries is led by the Campaign for Better Transport, which advocates for a good contribution from ZEV drivers in response to declining fuel duty revenues.
Ann Carruthers, President of ADEPT, emphasises the need to address the funding gap as the transport system decarbonises.
She suggests that a well-designed pay-as-you-drive EV tax system would support responsible funding for road infrastructure while encouraging more environmentally friendly travel options, which are necessary to meet net-zero goals.
Simon Williams, RAC’s head of policy, also highlights the necessity of replacing fuel duty with a good taxation system as EV adoption increases.
He added that a new form of taxation must be introduced to avoid losing billions because fuel duty revenue is projected to continue to decline as more energy vehicles are introduced.
According to our research, “drivers generally agree with the idea that the more you drive, the more tax you should pay.” The most crucial aspect of any new taxation system is that it is straightforward and honest to both conventional and electric car drivers, regardless of how it appears.
A pay-per-mile system could be set up based on the emissions of vehicles, with EV drivers paying the least to encourage take-up and gas guzzlers paying the least.
” We’re not in favor of charging different mileage rates depending on the type of road being traveled. We think the Treasury needs to move forward with the development of this new system sooner rather than later.
The debate over how to maintain vital public funding is getting more heated as the UK shifts toward electric vehicles.
It is important to strike a balance between the need for reasonable taxation and the promotion of zero-emission vehicles.
The UK can ensure that road infrastructure is sufficiently funded while continuing to encourage the adoption of cleaner transportation options by implementing a well-considered EV tax system that aligns with economic goals.
