UK faces £35bn tax gap if it fails to tax electric vehicles, MPs say

Currently, vehicle excise duty and fuel duty raise around £35bn a year for the Treasury, but neither tax is levied on pure electric vehicles.

The UK is also set to ban the sale of new petrol and diesel vehicles entirely from 2030 as part of efforts to lower the country’s carbon emissions to net zero by 2050.

The Committee has urged the Treasury and the Department for Transport to start an “honest conversation” about how to maintain investment in roads and public services with the money that comes in from vehicles with internal combustion engines.

In its Road Pricing report, it proposes a system based on miles travelled and vehicle type, which would enable the government to maintain the existing link between motoring taxation and road usage.

It believes this should entirely replace fuel duty and vehicle excise duty rather than being added and would be “revenue neutral” with most motorists paying the same or less than they do currently.

It would also be designed not to undermine progress towards targets on increased active travel and public transport.

In signalling a shift to an alternative road charging mechanism, the report calls for drivers of electric vehicles to pay to maintain and use the roads which they drive on, as is currently the case for petrol and diesel drivers.

“There must, however, remain incentives for motorists to purchase vehicles with cleaner emissions,” the report added.

Huw Merriman MP, chair of the Transport Committee, said: “The resulting loss of two major sources of motor taxation will leave a £35bn black hole in finances unless the Government acts now – that’s four per cent of the entire tax-take. Only £7bn of this goes back to the roads; schools and hospitals could be impacted if motorists don’t continue to pay.  

“We need to talk about road pricing. Innovative technology could deliver a national road-pricing scheme which prices up a journey based on the amount of road, and type of vehicle, used. Just like our current motoring taxes but, by using price as a lever, we can offer better prices at less congested times and have technology compare these directly to public transport alternatives. By offering choice, we can deliver for the driver and for the environment. Road pricing should not cost motorists more, overall, or undermine progress on active travel.

“Work should begin without delay. The situation is urgent. New taxes, which rely on new technology, take years to introduce. A national scheme would avoid a confusing and potentially unfair and contradictory patchwork of local schemes but would be impossible to deliver if this patchwork becomes too vast.  The countdown to net zero has begun. Net zero emissions should not mean zero tax revenue.”

Provisional figures from the Society of Motor Manufacturers and Traders today showed that while demand for new cars remains below pre-pandemic levels, sales of electric models continue to buck the trend.

It said one in five new car buyers chose a plug-in vehicle last month with battery electric vehicle registrations up around 130 per cent year-on-year, with a 45 per cent rise in demand for plug-in hybrids.