Rethinking the pay-per-mile tax

An article in the Guardian yesterday announced that "Campaigners have called on the chancellor to introduce a controversial pay-per-mile road charging scheme on electric cars, warning of a ￡5bn 'black hole' in tax revenues from motoring."

The Campaign for Better Transport (CBT), in a letter to Rachel Reeves, urged her to reform vehicle taxes as fuel duty is expected to shrink over the next decade with the phase-out of petrol and diesel cars. According to the charity, it’s an "urgent issue," as tax revenues are projected to drop by ￡5bn between 2028 and 2033, with the public reportedly agreeing that all vehicles should contribute fairly.

However, I’d like to challenge this idea of a "black hole." It all depends on how you choose to present the data. Let’s look at the actual numbers:

The government spends ￡12.1m on roads, while motorists currently contribute ￡8.3bn in Road Fund Tax, according to the Office for Budget Responsibility, plus ￡24bn in fuel duty. Given these figures, it’s clear that motorists – whether driving electric or internal combustion engine (ICE) vehicles – aren’t exactly getting a bargain. So, what of this ￡5bn "black hole"? In reality, it reveals a much larger issue: the fundamental flaws in how the government structures taxation. Fuel duty alone makes up over 2.5% of government revenue, yet the tax levied on oil companies is minuscule by comparison. Even worse, oil producers enjoy tax breaks for developing new oil fields. It’s an absurd situation. The government has made a Net Zero commitment, but a significant portion of its revenue relies on continued oil consumption. This creates a conflict of interest – the government is incentivised to delay the rollout of EV infrastructure and Net Zero initiatives for motoring. Not exactly a cohesive strategy, is it? In fact, it’s counterproductive to the very goal they claim to pursue.

Of course, reforming the tax system makes sense, and yes, electric vehicles (EVs) should contribute. But the system needs to penalise ICE vehicles and incentivise EVs. Many people mistakenly believe that motoring taxes pay for roads. They don’t. All the tax revenue just goes into the general pot. Perhaps it’s time motoring taxes were genuinely dedicated to transport solutions. Imagine where we could be if we invested in electric trucks on electrified motorways, built a robust charging infrastructure, and made rail travel affordable. The original HS2 project could easily have been funded by the surplus from motoring taxes – and would still be possible, given the slower-than-expected adoption of EVs. Some might say the government would find it convenient if the switch to EVs stalled altogether (pun intended). Instead, we should be accelerating (pardon the pun) towards faster, cleaner transport solutions, spurring economic growth and prosperity through infrastructure investment.

The government needs to break its addiction to taxing petrol consumption. The landscape has changed – it’s been 115 years since fuel duty was introduced – and the tax system must evolve to reflect the new reality. After all, why would you create a system that encourages the opposite behaviour to what you want to achieve? You wouldn’t punish a dog for good behaviour or reward it for biting the postman.?

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