As the UK government faces a significant £40 billion funding gap, the impending transition to electric vehicles poses an additional challenge—£25 billion in annual fuel duty is projected to vanish. With this substantial revenue about to fade, what alternatives could be implemented to fill the void?
Gwyn Topham, a transport correspondent, highlights that the Treasury is acutely aware of the financial implications as electric cars, which currently account for nearly 20% of new registrations, pay no fuel duty. This shift has opened up discussions on road pricing, a concept that was once seen as the future of motoring taxation. Former Prime Minister Tony Blair, an advocate of this approach, is now pushing for renewed consideration through his think tank, the Tony Blair Institute (TBI).
Supporters of road pricing—often referred to as metering or pay-per-mile schemes—assert that this method could both alleviate road congestion and generate fair revenue from motorists. While the last Labour government prioritized congestion management, today’s pressing issue for the Treasury is revenue generation.
The £25 billion collected from fuel duty funds a substantial portion of the UK’s road and rail system, and as electric vehicle registrations rise, the sustainability of this revenue source comes into question. Ahead of Chancellor Rachel Reeves’ budget announcement on October 30, the TBI has called for a modest road charge of 1p per mile for cars and vans, and between 2.5p to 4p for heavy goods vehicles. This, they argue, is crucial for reforming motoring taxation in the electric vehicle era and preventing additional congestion.
The Campaign for Better Transport has also proposed a pay-per-mile system, initially applying it to electric vehicles. Numerous organizations, including the RAC, echo the need for significant reforms. Sir John Armitt, head of the National Infrastructure Commission, claimed that road pricing is “inevitable.”
However, the reality is more complex. Motorists have grown accustomed to favorable treatment when it comes to budget proposals. Since 2010, Conservative chancellors have frequently frozen fuel duty rather than allowing it to rise, with Rishi Sunak’s temporary 5p reduction in 2022 keeping duty at 52.9p. This move has resonated with right-leaning media, which positions the maintenance of low fuel duty as a defense of the “white van man.”
Had inflation-adjusted increases been applied, fuel duty could have exceeded £1 per liter, adding an estimated £20 billion a year to government revenue. With current low oil prices and the need for funds coinciding with an election cycle, many believe now is an opportune moment to reconsider fuel duty rates. Alternatively, as the TBI suggests, implementing road pricing could yield similar revenues to restore the recently cut fuel duty.
Steve Gooding, director of the RAC Foundation, recalls the intense public backlash against road charging in the Blair years, which culminated in a petition signed by 1.7 million people against the initiative. He observes, “The political realities are as challenging now as they have ever been,” as public sentiment around driving and taxation remains sensitive.
While groups like Fair Fuel UK question the rationale for taxing drivers, most concede, as the RAC Foundation states, that motoring incurs societal costs—environmental, safety, and congestion-related—that exceed those tied to road maintenance and improvement. Both organizations argue that poorer drivers, who are least likely to own efficient or electric cars, end up disproportionately affected by fuel duty.
Interestingly, research by the Social Market Foundation indicates that the wealthiest have derived the most benefit from the fuel duty freeze, given their greater consumption levels, while many households do not own vehicles.
Fuel duty is viewed as a straightforward yet effective tax mechanism. According to Professor Stephen Glaister, former chair of the Office of Rail and Road, “It’s cheap to collect and hard to evade, making it a direct tax on carbon emissions.” However, he acknowledges that it doesn’t directly address congestion.
Proponents of road pricing argue that it could be designed to manage demand effectively, akin to peak fare systems in public transport. Advances in technology and public acceptance of digital tracking for payments enhance the feasibility of such systems.
However, the idea of a monitored, data-driven road pricing scheme raises substantial political challenges. London Mayor Sadiq Khan once considered an intelligent road charging system, but he faced significant backlash, leading him to abandon the idea in the face of public resistance and accusations of “Big Brother” governance.
Concerns about civil liberties cut across various political lines, with even the Green Party in London expressing skepticism about privacy implications, particularly after previous administrations granted law enforcement access to congestion charge data.
Assurances of reduced congestion have proven elusive, even in established zones like London’s congestion charge area, where heavy traffic persists despite the toll.
In grappling with the political acceptability of road pricing, Glaister emphasizes the importance of a credible governance structure to ensure the public that funds raised would be reinvested in local transportation, especially addressing issues like the nation’s pothole crisis. Glaister argues that starting with the motorway network might be most feasible due to its controlled nature and accepted models in other countries, such as France and Japan.
Gooding believes that if charging were to be implemented, a straightforward system based on total distance driven would be optimal. This would involve recording mileage during annual vehicle inspections.
Yet, will road pricing become a reality? Despite ongoing discussions about potential reforms, Glaister notes that the loss of fuel duty revenue from conventional vehicles will not become critical immediately, especially with the planned prohibition on new petrol cars still some years away.
The Treasury remains quiet on this issue, maintaining the official stance that “there are no plans to introduce road pricing.” For Gooding, any sign of potential road pricing consultations would be unexpected. He concludes, “I suspect the chancellor will further postpone this issue as the end of the month approaches.”
