Recent reports suggest that significant changes to car tax could soon be introduced, with the Treasury reportedly keen on introducing a pay-per-mile system for UK drivers.
Adam Smith, who was former chancellor Jeremy Hunt’s chief of staff from 2022 to 2024, revealed senior officials had pushed for a new road pricing system.
In recent years, a per-mile vehicle tax system has emerged as a possible solution to the looming shortage of fuel tax revenue.
Experts estimate the government could lose between £20 billion and £35 billion in fuel tax revenue as more motorists switch to electric vehicles.
Fuel tax revenue is expected to decline significantly in the coming years
Treasury officials are reportedly exploring the possibility of introducing a nationwide road pricing system as the uptake of electric vehicles increases, according to The Telegraph.
Responding to a transport committee report on the funding gap, Smith said the issue had become an early priority for the former chancellor.
He suggested that the Treasury Department favor a vehicle tax regime that pays per mile to address concerns about the impact of electric cars on fuel tax and vehicle excise tax (VED) revenues.
Electric vehicles (including electric company cars) are currently exempt from vehicle tax. However, this will change from April next year, when they are expected to be taxed at the same rate as the lowest-emission vehicles.
A further increase in the electric car tax of 1% is expected for the tax years 2026/27 and 2027/28.
Labor is also considering reinstating the original 2030 deadline for banning the sale of new petrol and diesel cars, following former prime minister Rishi Sunak’s decision to delay the ban by five years.
In his Conversation with The TelegraphSmith added: “The Transport Select Committee had supported the introduction of a road pricing system in February 2022. It largely supported the recommendation to begin preparatory work for such a system.”
Chancellor Rachel Reeves will deliver the first Labor Budget in October
A 2021 report from the Tony Blair Institute for Global Change predicted that the UK government’s annual fuel tax revenue would “collapse” in the coming years.
The report estimated a revenue loss of over £30bn, potentially requiring tax rises of up to 6p by 2040 as revenue from petrol and diesel sales fell.
The study, titled “Avoiding Gridlock Britain”, warned that “inequity will increase” as electric vehicle owners do not pay for fuel and will still have to pay lower tax contributions next April when the laws change.
Chancellor Rachel Reeves is expected to present the first Labor Budget in the autumn statement on October 30. MPs for Leeds West and Pudsey could use this opportunity to introduce new road pricing.
It remains to be seen whether Reeves will adjust the current fuel tax rate. The 5p per liter cut has been frozen since March 2022 in response to the Russian invasion of Ukraine.
Although no official announcement has been made yet, the possibility of a new vehicle tax based on payment per mile is becoming increasingly likely.
Some experts have suggested offering “free miles” to certain drivers if a pay-per-mile car tax regime is to be introduced. This is likely to benefit rural drivers as they often have to travel longer distances for essential services.
At the same time, an increase in AMAP rates (Approved Mileage Allowance Payments) for employed taxpayers who use their cars for work-related trips would be welcome.
The current rates per tax year are 0.45p per mile for the first 10,000 miles and 0.25p per mile thereafter and have not increased since 2011.
While we await further developments, it is clear that the future of car taxation in the UK will continue to evolve.
Whether through a pay-per-mile system or other measures, changes are on the horizon.
As the government grapples with these challenges, British motorists should stay informed about potential changes to car tax.
The introduction of a mileage-based vehicle tax system could have a significant impact on how much motorists pay for road use.
What is the general opinion on mileage-based vehicle tax?
It is not surprising that a current survey from Go Compare revealed that public opinion among British motorists is divided over the proposed per-mile road tax.
While some drivers recognize the potential benefits of a fairer and greener vehicle tax structure, others have reservations about the practical implications and possible unintended consequences, which are legitimate concerns.
A survey conducted by Go Compare contacted 2,000 drivers. Below is a summary of key findings:
- 53% of British motorists opposed proposed changes to car tax towards a pay-per-mile system.
- 26% of UK drivers supported the introduction of a pay-per-mile system instead of the current road tax system.
- 51% are of the opinion that this would make vehicle tax too complicated.
- 51% think it is unfair to drivers who drive more.
- 26% believe you should be exempt from tax or receive a discount when traveling for business.
- 30% have privacy concerns.
Source: https://www.gocompare.com/motoring/news/pay-per-mile-tax/
