New motoring tax needed to avoid ‘£35bn black hole’ – MPs

The Government must urgently develop a new motoring tax to address the decline in revenue as drivers switch to electric cars, according to MPs.

A report by the Transport Select Committee stated that there is likely to be “zero revenue” from existing motoring taxation by 2040.

The sale of new petrol and diesel cars and vans will be banned in the UK from 2030.

Taken together, vehicle excise duty and fuel duty raise around £35 billion a year.

Neither tax is levied on pure electric vehicles, so the committee urged the Treasury and the Department for Transport to start an “honest conversation” about how to maintain investment in roads and public services.

It urged the departments to collaborate to set out their preferred options for replacing the taxes, and establish an arm’s-length body to recommend which one to proceed with by the end of the year.

The report stated that it has not seen a “viable alternative” to a road pricing system which uses technology to track the movement of vehicles and charges drivers based on distances gathered.

Such a scheme could factor in the type of vehicle and congestion, and support vulnerable groups such as those with mobility issues, and people in remote areas.

Motorists should pay “the same or less” than under current taxes, the MPs insisted.

Figures from the Society of Motor Manufacturers and Traders show plug-in vehicles accounted for more than one in six new cars registered in the UK last year.

“The situation is urgent,” the report warned. “Work must begin without delay.”

Tory MP Huw Merriman, who chairs the committee, said the UK faces a “£35 billion black hole in finances unless the Government acts now”.

He went on: “That’s 4% of the entire tax-take. Only £7 billion 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.”

He added: “Net-zero emissions should not mean zero tax revenue.”

RAC Foundation director Steve Gooding said the “silver lining of zero-carbon motoring comes wrapped in a cloud of trouble for the Chancellor”.

He went on: “Drivers choosing to go electric deserve to know what is coming next – particularly if the promise of cheap per-mile running costs is set to be undermined by a future tax change.

“If the Treasury is thinking it can leave this issue for another day but still recoup their losses from electric vehicles they risk a furious backlash from drivers who made the choice to go electric expecting to save money.”