Switching to a ‘mileage-based road tax’
There have been calls from the Transport Select Committee (TSC) to switch the current road taxation system.
Generally, motorists are subject to two sources of tax, providing they have an internal combustion engine (ICE) vehicle:
- Vehicle excise duty – an annual payment that the motorist must pay. The amount of money the individual must pay is dependent on vehicle age and emissions.
- Fuel duty – the tax an individual pays every time they fill up their car at a petrol station.
Why may we need to change?
Combined, vehicle excise duty and fuel duty generate £35bn a year of revenue for government spending. Around £7bn of that money is reinvested back into the roads. The other £28bn is spread across other vital public services.
Electric vehicles (EVs) are currently exempt from vehicle excise duty as they are zero-emission. Furthermore, they don’t need to go to the petrol station, so avoid fuel duty.
More than ever, the UK population is making the switch to EVs. For instance, there were more EV registrations in 2021 than in the five years previous.
Of course, as more people make the switch, the tax revenue from ICE vehicles will decrease. This will affect the UK government’s ability to spend – the £35bn revenue makes up around 4% of their annual taxation revenue.
Therefore, the TSC has said that a mileage-based road tax would help close the ‘black-hole’ which will otherwise occur.
What could a mileage-based road tax look like?
Although there are no ‘ready to go’ plans to change the taxation system, a few ideas have been put forward.
A potential idea would be to use a similar tiering system. This could be done by multiplying the driver’s mileage by their relevant tier cost. The table below is an example of what this may look like for someone doing 10,000 miles/annum. The prices are for illustration purposes only.
|CO2 Emissions (g/KM)||Example cost (pence/mile)||Mileage||Annual cost
In terms of assessing mileage, utilising tracking technology, such as telematics, has been put forward as a tool to record data accurately.
A different suggestion involves charging motorists depending on the road and time of day. Subsequently, charges are higher for driving on a busy road during peak hours.
These are just some theories about how a road tax may work.
What are the barriers to switching to a mileage-based road tax?
Several barriers and difficulties make changing the taxation system difficult.
Firstly, there has been public opposition to a mileage-based road tax in the past. EV owners in particular question why they should pay when their vehicle is environmentally friendly. Additionally, their vehicle is more expensive in the first place.
Secondly, it is unclear when the best time to implement the tax would be. If the change was made quickly, people might be put off EVs. On the other hand, the longer we wait, the less tax the government will raise.
Finally, there is a concern relating to using tracking technology. If we use telematics, how will we guarantee personal privacy?
These are the difficult questions that must be overcome if we are to adopt a mileage-based tax.
What can you do?
While the details of any new taxation are yet to be confirmed, it is clear there will need to be another way of plugging the gaps in the tax system.
The government have said they do not want to punish EV drivers. Furthermore, the 2030 ICE ban will still be implemented, so sticking with the transition to EV seems logical.
Some businesses will be able to avoid costs by organising meetings via MS Teams or Zoom. However, other organisations will need to keep their fleet on the road, so reducing tax costs is crucial.
How can we help?
Regardless of the potential change, we believe EVs are still the way to go. If you need help developing an electrification roadmap, please contact us.
EVP Solutions are experts in the fleet industry. While we don’t know what will happen yet, our dynamic team will quickly come to grips with any changes, so we can advise you.