Electric cars face being fitted with tracking devices under proposals for a pay-per-mile road taxation system put forward by the Government’s own climate advisers.
The Climate Change Committee (CCC) says the Government needs to find ways to cover the “significant hole” in the public finances left by the loss of fuel duty and other taxes when petrol and diesel cars are replaced by electric models.
The new report also calls for the cost of renewable projects to be shifted from electricity bills into general taxation, a move it says could cut energy bills by £90.
On electric cars, the CCC said a “sensible and fair” approach would see the costs covered by drivers, rather than general taxation, arguing that some form of “road pricing” is needed under which drivers are charged for how much they drive.
Potential approaches, it added, range from “a simple charge per mile driven, which could be levied based on annual odometer checks, to more sophisticated schemes that vary the charge based on the time of day or the location/type of road being used, based on vehicle tracking technologies.”
The CCC said the government needed to explore the policy now so it is ready to be implemented this decade. The sale of new petrol and diesel cars is set to be banned in 2030. Introducing a new tax system at an “early stage” will help avoid a situation where drivers “begin to assume that EV driving will always be tax free,” the CCC said.
Chris Stark, chief executive of the CCC, added: “The chancellor has several billion reasons to worry about this transition to electric vehicles unless he has some form of replacement fiscal regime that will account for the dwindling revenues from fuel duty.”
Currently, petrol and diesel drivers pay fuel duty at 52.95 pence per litre, bringing in £28bn for the Government last year. Petrol and diesel are also subject to 20pc VAT. By contrast, electric car divers pay no fuel duty, and VAT on domestic electricity is only charged at 5pc.
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“All told, these differences mean that the transition to EVs is likely to leave a significant hole in the public finances if replacement taxation schemes are not introduced,” the CCC said. There are currently about 462,050 battery electric vehicles on the UK roads, according to estimates from the RAC, compared to 207,051 in 2020.
The pay-by-mile proposals are among a wide-ranging set of recommendations from the CCC for Government in its latest progress report on tackling climate change. They include shifting the costs of subsidising older renewable energy projects from electricity bills and onto taxation. The move could cut about £90 off energy bills, which are currently at record highs of £1,971. Lord Deben, chair of the CCC, said it would be “fairer”.
The CCC warns that the Government is at risk of missing its carbon cutting targets, as delivery has not yet caught up with policies in place.
“There are some bright spots of progress, but in most areas the likelihood of under-delivery is high. This is a high-wire approach to Net Zero,” it said.
A Government spokesman said the UK had “driven down emissions faster than any other G7 country, and that we have clear plans to go further.”
“The UK is forging ahead of most other countries with around 40% of our power now coming from cleaner and cheaper renewables," the spokesman added.
“This is backed up by £6bn of funding to make our homes and buildings more energy efficient, planting up to 30,000 hectares of new trees a year and more electric cars than ever before on our road - decarbonising our cars and vans faster than any other developed country.
“We are leading the world on climate change, helping over 90pc of countries set net-zero targets during our COP26 Presidency - up from 30pc two years ago.”