Transport Committee to explore road pricing as Treasury warns of funding black hole
The Transport Select Committee has opened an inquiry into the need for road pricing as a Treasury report says the Government will need to consider how to offset the lost revenues from the switch to EVs.
It’s a much-anticipated move – The Times reported earlier this autumn that the chancellor is mulling a per-mile charge to help avert an annual £40bn tax shortfall from VED and fuel duty from drivers choosing electric vehicles.
But the long-running debate is now back in the headlines as the Treasury’s newly published Net Zero Review Interim Report outlines how the next steps in the ‘green transition’ will affect revenues.
The report says: “Structural changes in the economy will also have implications for fiscal policy. Revenues from taxes on the consumption of fossil fuels and from emissions-intensive industries will decline during the transition, for example, as petrol cars are replaced by electric vehicles. Over time the Government will need to consider how to offset these lost tax revenues – whether through adjustments to other taxes or reductions in government spending – so that the UK can reach net zero while maintaining the long-term health of the public finances.”
The report comes on the back of last month’s Government commitment to end the sale of new petrol and diesel cars and vans by 2030 in its work to bring all greenhouse gas emissions to net zero by 2050. This includes the pledge of up to £1bn to support the electrification of UK vehicles and their supply chains, while a further £1.3bn has been committed to accelerate the roll out of charging infrastructure and installing more on-street chargers near homes and workplaces.
However, the shift to EVs will take its toll on Treasury incomes and while road user pricing has previously been perceived to lack public support, it’s now increasingly coming under focus.
The inquiry by the Transport Committee will consider the implications of accelerating the shift to zero emission vehicles, including bus and freight vehicles, and the case for using innovative new technology to introduce some form of road pricing.
It will also look at appropriate schemes and the practicalities of implementing them.
Huw Merriman, chair of the Transport Committee, said: “The Government decision to bring forward the ban on the sale of new petrol, hybrid and diesel cars, recently announced in the ‘Ten Point Plan’ for a green industrial revolution, is considered a vital step along the UK’s path to net zero. This inquiry will help us get into the details and practicalities of the policy and the financial implications.
“A consequence of the transition to electric vehicles is a potential £40bn annual fiscal black hole, due to the reduction in Fuel Duty and Vehicle Excise Duty. Something will have to change. We will be exploring whether radical road pricing or ‘pay-as-you-drive’ schemes can offer a revenue-raising solution to this problem. We will explore the practicalities of different schemes, the level of public support for them, and best practice from other countries. We will also assess whether new technologies and pricing can both be utilised to incentivise consumer behaviour change, reduce congestion and promote active travel.”
The Transport Select Committee’s inquiry on road pricing is open until 17 February 2021. For more details and to submit comments, click here.