Drivers should be taxed for every mile they travel to help Rachel Reeves fix a hole in Britain’s public finances, a leading think tank has urged.
The Resolution Foundation, which has considerable influence in Labour circles, said vehicle taxes should be overhauled to replace lost fuel duty as more drivers switch from petrol and diesel cars to electric vehicles (EVs).
The think tank has proposed a system to hit drivers with an annual tax plus another fee of between 3p and 9p per mile driven. Drivers of heavier vehicles could be charged the higher price, reflecting wear and tear on Britain’s roads.
“Motoring taxes are an important part of the tax system but they are also an obvious and significant fiscal risk,” said Adam Corlett, who wrote the report.
It’s feared the Chancellor will have to raise as much as £30bn in taxes in her November Budget.
Taxing drivers per mile could raise up to £20bn per year for the Government, the Resolution Foundation suggested.
Fuel duty revenues are set to fall by one fifth by the end of this decade compared to five years ago, from £28bn to £22.6bn, according to the Office for Budget Responsibility.
That drop comes as drivers switch to EVs as well as to hybrid cars and more efficient traditional petrol and diesel models.
Mr Corlett suggested the lightest cars be charged 3p, rising to 9p per mile for heavier models.
“Distance could be logged via a mixture of MOTs, self-reporting and ideally telematics (with the latter helping to exclude miles driven outside the UK and perhaps facilitating local per-mile additions in future to tackle the worst congestion),” his report said.
He also proposes cutting VAT on public chargers from 20pc to 5pc to match the tax on home electricity bills as well as increasing taxes on non-electric cars.
The Resolution Foundation estimates the changes would raise £2bn per year by the end of the decade, £10bn in 2035 and £20bn per year by 2040.
Motoring groups oppose road pricing. Ian Taylor, from the Alliance of British Drivers, said pay per mile schemes are not “particularly fair”.
“It would almost certainly put prices up and probably the only way to administer it is to track everyone, which has freedom and privacy implications,” he said, noting options include roadside cameras or satellites.
“It costs a lot of money to administer, regardless of how you do it.”
Mr Corlett also proposed ending the freeze on fuel duty, which has not increased since 2011. He said the tax should rise by 3pc every year.
Similarly the temporary 5p cut, which is due to expire in March, could be reversed gradually over a number of years to ease the impact “when concern about inflation is likely to still be high”.
This change would see the tax rise from 52.95p per litre currently to almost 70p by the end of the decade.
Petrol cost an average of 134p per litre last week, according to the Department for Transport. That is up by just over 6pc from around 126p before the pandemic – a noticeable increase for drivers.
A Treasury spokesman said: “The Chancellor makes tax policy decisions at fiscal events. We do not comment on speculation around future changes to tax policy.”
