Introducing a pay-per-mile road pricing, initially for electric vehicles, would provide a smarter and fairer approach to motoring taxation, according to the Centre for Policy Studies (CPS).

CPS has called for an overhaul of the outdated and onerous vehicle taxation system

The think-tank has published a new report saying that road transport in Britain generates too much congestion and air pollution, while drivers are treated as a ‘cash cow’, paying far more through taxation than is invested back in the road network.

According to its data, drivers paid £33bn in fuel duty and vehicle excise duty in 2021/22. But the Government spent only £5.4bn on national roads and £6.4bn on local roads in the same period.

‘The Future of Driving’ report, co-authored by CPS energy and environment researcher Dillon Smith and research director Tom Clougherty, makes a series of vital recommendations to “redress the balance”.

It argues that fuel duty and vehicle excise duty should be replaced with a per-mile charging system, with higher mileage allowances for those living in rural areas to ensure fairness. This should initially apply only to electric vehicles, which would still pay less than their petrol or diesel counterparts.

While everyone would receive a set allocation of tax-free miles every year, the allocation would be higher for those living in remote areas with fewer transport alternatives.

Eventually, as the share of zero-emission vehicles on the roads grows, this new per-mile charging system could completely replace fuel duty and vehicle excise duty for all vehicles – “exchanging an outdated and onerous tax system with something ‘future-proof’ and much fairer towards drivers”.

Dillon Smith, CPS energy and environment researcher and report co-author, said: “Driving is a fundamental part of life for millions of people up and down the country. Our recommendations take into account public feeling on a variety of proposals, privacy concerns, and their financial impact, and deliver a solution which can lead to fairer, better, and more efficient taxation while tackling congestion and improving air quality in our big cities.”

A forecast from the Office for Budget Responsibility indicates that the switch to EVs will see fuel duty and VED revenue will fall to £2.1bn by 2026/27, compared to the estimated £35bn that is currently raised.

In March this year, the Transport Committee lambasted the Treasury’s lack of action on tackling road pricing. MPs on the select committee had warned a year earlier that the UK “faces an under-resourced and congested future unless the Government acts urgently to reform motoring taxation”, drawing attention to the growing black hole in vehicle-related income from both VED and fuel duty in the run up to the 2030 ICE ban.

Chancellor Jeremy Hunt had been widely expected to outline plans to target electric cars in the 2022 Autumn Statement but nothing materialised. And in its delayed response to the Transport Committee report, the Treasury’s main message was that the Government “does not currently have plans to consider road pricing”.

Tom Clougherty, co-author of the CPS report, said: “The Treasury has grown used to motorists being a cash cow, but with electric vehicles on the rise, those days are numbered. We shouldn’t replicate the old, punitive tax system, but it is still important that all drivers pay a fair amount for the roads they use. The ‘pay-as-you-drive’ approach our report recommends would meet that objective and could be phased in gradually over the next decade or so – alongside targeted, local initiatives to manage congestion and reduce air pollution.”

Other findings in the CPS report show that voters remain concerned about air quality and congestion, with significant numbers believing that government has not done enough to tackle either. Polling by BMG Research for the CPS shows strong support for action on both, including among 2019 Conservative voters.

The report also shows that there is strong public backing for clean air zones to tackle air pollution, including among 2019 Conservative voters. However, focus groups have made it clear that local governments need to work harder to bring the public on board and avoid the perception that such measures are simply about raising money.

Public support for a switch to pay-per-mile road pricing

RAC head of roads policy Nicholas Lyes said: “As more electric vehicles come on to our roads, revenue from fuel duty and vehicle excise duty will decline, so it’s inevitable a new system will have to be developed. Our research suggests drivers broadly support the principle of ‘the more you drive, the more tax you should pay’, with more than a third (36%) saying a ‘pay-per-mile’ system would be fairer than the current regime – although three-quarters (75%) are concerned the Government might use such a system as a way of increasing the amount they are taxed.

“Whatever any new taxation system looks like, the most important thing is that it’s simple, transparent and fair to drivers of both conventional and electric vehicles. It’s essential that a new system replaces rather than runs alongside existing taxation regime.

“Ministers should also give serious consideration to ringfencing a sizeable proportion of revenues raised from a new scheme for reinvestment into our road and transport network, not least to finally end the country’s plague of potholes.”

Research last year by the Campaign for Better Transport also found public support for a road pricing scheme to replace fuel duty and VED. Its poll revealed half (49%) of the British public would support a switch to pay-as-you-drive taxation as an alternative to fuel duty and road tax; less than a fifth (18%) opposed the idea.

Responding to the Centre for Policy Studies’ report, Silviya Barrett of Campaign for Better Transport, said: “It’s good to see that the Centre for Policy Studies has drawn on our own pay-as-you-drive research to reach the same conclusion that our current system of vehicle taxation is outdated and should be replaced with a per-mile charge.

“It is only fair that drivers pay their share of tax to address the economic costs incurred by motoring pollution and congestion.”

She added: “It is important that proceeds are invested in public transport as well as roads upkeep, to provide good travel options for everyone.

“The Government should establish a cross-party commission as early as possible on how to fairly reform vehicle taxation to plug the revenue gap created by the rollout of EVs and to improve air quality and congestion.”

The Centre for Policy Studies’ report on ‘The Future of Driving’ is available to download here.