Recent reports suggest that significant changes to car tax might be introduced soon, with the Treasury reportedly keen on implementing a pay-per-mile system for UK drivers.
Adam Smith, who served as chief of staff to former Chancellor Jeremy Hunt from 2022 to 2024, revealed that senior civil servants had been pushing for a new road pricing scheme.
A pay-per-mile car tax system, has gained traction in recent years as a potential solution to the looming shortfall in fuel duty revenue.
Experts estimate that the government could lose between £20 billion and £35 billion in fuel duty receipts as more drivers switch to electric vehicles.
Fuel duty income is expected to decrease significantly in the coming years
As electric vehicle adoption increases, Treasury officials are reportedly exploring the possibility of introducing a nationwide road pricing scheme, according to The Telegraph.
Responding to a Transport Committee report on the funding shortfall, Smith stated that this issue became a priority for the former Chancellor early on.
He suggested that the Treasury favoured a pay-per-mile car tax scheme to address concerns about the impact of electric cars on revenue from fuel duty and Vehicle Excise Duty (VED).
Currently, electric vehicles (including electric company cars) are exempt from car tax, but this will change from next April when the expectation is that they’ll be taxed at the same rate as the lowest-emission vehicles.
A further 1% electric car tax increase is estimated for the 2026/27 and the 2027/28 tax years.
Labour is also considering reinstating the original 2030 deadline for banning new petrol and diesel car sales, following former Prime Minister Rishi Sunak’s decision to delay the ban by five years.
In his conversation with The Telegraph, Smith added: “The Transport Select Committee had endorsed the introduction of a road pricing scheme in February 2022. It broadly supported the recommendation to begin preparatory work on such a scheme.”
Chancellor Rachel Reeves set to present the first Labour Budget in October
A 2021 report by the Tony Blair Institute for Global Change predicted that the UK Government would see annual fuel duty revenues “plummet” in the coming years.
The report estimated a loss of over £30 billion in revenue, potentially necessitating tax increases of up to 6p by 2040 due to reduced income from petrol and diesel sales.
The research, titled “Avoiding Gridlock Britain”, warned that “unfairness will rise” as electric vehicle owners don’t pay for fuel and will still have lower tax contributions next April when laws change.
Chancellor Rachel Reeves is scheduled to unveil the first Labour Budget in the Autumn Statement on October 30. The MP for Leeds West and Pudsey might use this opportunity to introduce new road pricing measures.
It remains to be seen whether Reeves will adjust the current fuel duty rate. The 5p per litre cut has been frozen since March 2022 in response to the Russian invasion of Ukraine.
While no official announcement has been made, the possibility of a new car tax pay-per-mile scheme is becoming increasingly likely.
Some experts have proposed offering certain drivers “free miles” if a pay-per-mile car tax scheme were to be implemented. Rural drivers are expected to benefit from this, given the longer distances they often need to travel for essential services.
At the same time an increase in the approved mileage allowance payments (AMAP) rates used by employed taxpayers who use their cars for work related journeys would be welcomed.
The current rates per tax year are worth .45p per mile for the first 10,000 miles and .25p per mile thereafter haven’t been increased since 2011.
As we await further developments, it’s clear that the future of car taxation in the UK is set to evolve.
Whether it’s through a pay-per-mile system or other measures, changes are on the horizon.
As the government grapples with these challenges, UK car drivers should stay informed about potential changes to car tax.
The introduction of a pay-per-mile car tax system could significantly impact how much drivers pay for road use.
What is the general opinion on the pay-per-mile road tax?
It is not surprising that a recent survey by Go Compare revealed that there is a split in public opinion amongst UK drivers regarding the proposed pay-per-mile road tax.
While some motorists acknowledge the potential advantages of a more equitable and eco-friendly road tax structure, others have reservations about its practical implications and potential unintended repercussions, which is a valid concern.
A survey conducted by Go Compare contacted 2,000 drivers and below is a summary of the main discoveries:
- 53% of UK drivers expressed their opposition towards the suggested changes in the road tax to a pay-per-mile system.
- 26% of drivers in the UK showed their support for the implementation of a pay-per-mile system over the current road tax system.
- 51% think it would make car tax too complicated.
- 51% feel that it would be unfair to motorists who drive more.
- 26% feel that you should be exempt or receive a discount if you drive for business.
- 30% have concerns around data privacy.
Source: https://www.gocompare.com/motoring/news/pay-per-mile-tax/
