While the chancellor, Rachel Reeves, grapples with the parlous £40bn funding gap in Britain’s finances, another £25bn of annual revenue is revving up to disappear into the sunset.
As the Treasury knows all too well, turning cars electric will spell the end of that great money-spinner fuel duty. But no one appears ready to grab the wheel and tax motoring in a different way.
Road pricing was the future, once, and Tony Blair, its last champion in Downing Street, is back via his TBI thinktank to push it again. Proponents of road pricing – or metering, charging, pay-per-mile – have traditionally been driven by two impulses: managing road congestion, and raising revenue fairly from motoring. The former most concerned the last Labour government; the latter has become a clear and present danger for the Treasury.
That £25bn from fuel duty, levied on petrol and diesel at the pumps, more or less covers the entire cost of Britain’s road and railway system. Electric cars, which pay zero fuel duty, make up almost a fifth of new registrations.
The TBI is the latest group to weigh in ahead of Reeves’ 30 October budget, urging her to introduce a road charge of 1p per mile for cars and vans, and 2.5p to 4p for lorries and HGVs – “a crucial step in reforming motoring taxation for the electric-vehicle era [and] preventing a growth-stifling rise in congestion”.
It follows the Campaign for Better Transport, which suggests pay-per-mile charges initially for electric vehicles only. A host of other groups, including the RAC, have also declared the need for similar reform. The head of the National Infrastructure Commission, Sir John Armitt, said road pricing was “inevitable”.
But is it? Motorists have got used to being treated with kid gloves come budget time. Since 2010, Conservative chancellors have made great play of freezing fuel duty instead of supposedly scheduled rises – with Rishi Sunak’s temporary 5p cut in 2022 leaving it at 52.9p – to much acclaim from the rightwing press, for whom fuel duty and protecting the interests of the “white van man” has become a totemic issue.
Inflationary rises – the kind applied to rail fares – would have pushed duty past £1 per litre, netting the exchequer at least £20bn a year more today.
Comparatively low oil prices, the need for revenue and this budget’s timing in the electoral cycle make this a ripe moment to raise fuel duty. Or, instead, as the TBI advises, introduce road pricing at a level that would raise the same amount as restoring the fuel duty cut – about £3bn – demonstrating that the reform will not be taxing motorists more overall.
Steve Gooding, director of the RAC Foundation, was at the sharp end last time a government looked seriously at road charging. In the Blair years, he was a civil servant grappling with the practicalities of the scheme. In response, the public put forward one of the biggest petitions ever handed to parliament, with 1.7m signatures telling ministers to back off.
“I watch with interest the old hands coming out and saying the government is being backed into the corner by declining fuel duty, and their hand is being forced,” he says. “But the political realities are as difficult now as they ever were.”
While pressure groups such as Fair Fuel UK question if driving should be taxed at all, most accept, as the RAC Foundation puts it, that “motoring imposes costs – environmental, safety, congestion – on society beyond those of maintaining, operating, improving, and building roads.”
Both organisations argue that fuel duty hits poorer motorists harder – the least likely to drive efficient or electric cars, and most likely to use diesel vans for work. Analysis by the Social Market Foundation, however, found the richest have benefited most from the duty freeze, due to disproportionate consumption – while many households have no car at all.
Compared to many taxes, fuel duty is a blunt but effective tool. Prof Stephen Glaister, former chair of the Office of Rail and Road, says: “It’s cheap to collect and difficult to evade, and provides lots of revenue. You couldn’t ask for a more direct tax on the carbon content than fuel duty. In terms of a polluter-pays tax on carbon emissions, it’s a very good tax.”
It is not, however, Glaister notes, a tax on congestion. For some advocates, road pricing could be used to shape demand, like peak fares on rail or surge pricing. Advances in technology, and public familiarity and acceptance of myriad ways in which smartphones track movements and payments, makes it feasible.
But the politics of a monitored, data-led system weigh even heavier. The London mayor, Sadiq Khan, floated the idea of an intelligent road charging system before the anti-Ulez expansion backlash. He was eventually pushed by the politics of a mayoral re-election campaign to disown the idea entirely – as lurid “Project Detroit” conspiracies pushed by opponents were joined by ominous warnings from Fair Fuel UK and sections of the press over Labour’s supposed “Big Brother” plans to decide where and when cars can drive.
Civil liberties concerns range across the spectrum; the Greens in London, otherwise supportive of measures to tax motoring, have highlighted privacy issues – not least since Boris Johnson as mayor decided to allow the Met police to have access to congestion charging data.
And promises to improve congestion can be hard to keep: even in central London’s long-established congestion zone, where the daily toll has virtually eradicated the private car, heavy traffic keeps bus speeds perpetually low.
Glaister has wrestled with how to make road pricing politically acceptable. “The first thing is to find a credible governance structure, one you could sell to the general public: that money raised through a new charging system would at least in part be ringfenced for local transport purposes” – including Britain’s multibillion-pound pothole problem, he says. “That would be a major change, but people otherwise think of it as a stealth tax from which they get no benefit back.”
The motorway system is the place to start, he says, and “relatively easy to do because of their closed nature”, fitting with a long-established principle of paying for express roads around the world: the French do it, the Japanese do it, and even Britons who are willing to pay do it, on the M6 toll road.
So long, Gooding notes, as the motorways are indeed better and not another congested jam, like the M25. But, he says: “If charging does happen, then I would advise the simplest system possible.”
That, in his view – and the TBI’s – is a charge linked simply to the total distance driven, read off the vehicle’s milometer and paid during the annual MOT checkup.
But will it happen? For all the advice to Reeves that there will never be a better time to reform motoring taxes, Glaister notes that, even with the eventual ban on new petrol cars: “The reality is that it’s going to be a while before loss of revenue on conventional fuel duty becomes overwhelming.”
The Treasury is tightlipped, and the government’s official line remains: “We have no plans to introduce road pricing.”
For the battle-scarred Gooding, even a hint of a future consultation on road pricing would be a surprise. He says: “I suspect the chancellor will kick this can down the road ever further come the end of the month.”