EVs could put UK fuel duty system on the rocks

by Autocar UK 25 Oct 2018

The UK government is forecast to collect £28.3 billion (Rs 267,091 crore) in fuel duty this financial year, and yet those who drive pure-electric vehicles will contribute precisely zero to that figure. So what will happen when we’re all humming about in electric vehicles?

Such a future now looks inevitable, with impending bans on the sale of petrol and diesel vehicles, cities plotting access restrictions for non-electrified vehicles and the EU rapidly imposing reductions on the fleet-average CO2 figures of manufacturers for new cars sold.

All this means that by 2025 more than one in 10 car sales across Europe will be purely electric, analyst firm LMC believes, even if those sales in the UK are currently skewed more towards plug-in hybrids than pure EVs.

The think tank Policy Exchange estimated last year that the government could lose up to £170bn (Rs 16 lakh crore) by 2030 by allowing electric cars to slip through the duty net. It stands by the figure today.

“If anything, the case for reform has accelerated because of the increased uptake of plug-ins,” said Josh Burke, a senior fellow at Policy Exchange’s environmental unit.

So what is the plan? And will those of us planning to hold on to petrol or diesel cars for as long as possible be affected? The government is laying very low on the subject. “It’s almost as if no one is addressing this issue,” said Edmund King, president of the AA. “We know that duty is going to disappear, but no one is facing up to it.”

A couple of pieces of evidence show the government is moving silently in the background. One was buried at the bottom of a web page run by government financial forecasters the Office for Budget Responsibility, which mentioned this year that it had agreed with the tax office to “investigate the potential impact of compositional changes in the vehicle stock and its implications for trends in fuel efficiency”. And the second from Burke, who told us that a Treasury official mentioned to him at a recent gathering that the government was looking at alternatives, including the dreaded words: road pricing.

Everyone we spoke to agrees that fuel duty is on its way out. “It will disappear, it’s inevitable,” said Phil Summerton, managing director of think tank Cambridge Econometrics.

Pretty much everyone we spoke to also agrees that taxing electricity as a fuel is a non-starter. “It would be incredibly difficult to replicate in electric cars,” Summerton said. “If people felt they were taxed on electric for their car but not their house, they would take out smart meters pretty quickly.”

Which leaves road pricing. “Given that mileage is already recorded for MOT purposes, it seems entirely logical,” said Tom Callow, director of strategy at electric charging firm Chargemaster. It also works on the same principle as fuel duty: drive fewer miles, pay less duty. The problem with road pricing is that it has traditionally proven to be incredibly unpopular. Fuel duty is unpopular enough, which is partly why the government has frozen it at 57.95 pence per litre (plus the VAT on the pre-tax price, plus the VAT on the fuel duty itself) every year since 2011. The Conservatives flirted with road tolls under David Cameron but dropped the idea after driver opposition. Now the government has no choice but to revisit, but the approach needs to be smarter, King argues. “Road pricing gets described as a poll tax on wheels. It’s political suicide,” he said.

King and his wife, economist Deirdre King, were shortlisted for the prestigious Wolfson Economics Prize last year for their proposal entitled Road Miles. Essentially under the King scheme, drivers are awarded a ‘free’ 3000 miles per year and they pay above that amount. Drivers in rural areas get more miles, as do drivers of lower-emission cars such as EVs. It’s more friendly in that it appears to give you something, rather than restricting freedoms. It’s introduced gradually, rather than straight away, with fuel tax phased out at the same time.

Whether King’s idea or another scheme is adopted, it seems certain mileage would either be tracked via a device attached to your car’s diagnostics port, similar to an insurance black box, or recorded at MOT time for older cars (necessitating a much tougher approach to clocking).

Many won’t overcome their dislike of road pricing but it will look a whole lot fairer when EV-driving neighbours to your left and right are among 20 households on your street niftily avoiding what is, for the rest of us, the largest motoring tax we’re subjected to.