There has been no shortage of rumours and predictions swirling around the upcoming Autumn Budget, but the prospect of a ‘pay-per-mile’ road tax has not been one of them.
Until, it seems, the Tony Blair Institute stuck its head above the parapet and made an admittedly compelling case for Chancellor Rachel Reeves to at least address the issue.
A PPM tax is simple in theory: Charge 1p per mile for all cars and vans and between 2.5p and 4p per mile for heavier, more polluting vehicles.
This would eventually supercede the existing fuel duty charged on fossil fuel-guzzling vehicles.
As society gradually shifts to fully electric vehicles, the government stands to lose tens of billions of dollars worth of tax receipts annually, since EVs, naturally, do not incur a fuel duty.
The Tony Blair Institute estimates the UK government stands to lose approximately 1% of GDP in fuel duty revenue as EVs become the standard.
Thankfully, you don’t have to trust the Tony Blair Institute on this. According to the Office for Budget Responsibility, fuel duty generated an estimated £24.7 billion in the 2023-24 tax year.
That’s around 2.2% of all tax receipts and around 0.9% of all national income that stands to go if and when fuel duty becomes obsolete.
Something will need to fill that hole in public finances, making a PPM tax a clearly logical step.
The Tony Blair Institute has recommended keeping the existing fuel duty rate of 52.95p per litre where it is, although existing plans have this rate increasing by 5p next March.
For the sake of clarity, none of these proposals suggests removing the vehicle excise duty, which EV owners are expected to start paying from next year.
According to the Tony Blair Institute, a PPM tax will do wonders for congestion, which is estimated to cost £120 billion a year in inefficiency and delays.
While these plans may be logical, they also risk setting off a political storm and backlash from the EV lobby.
A PPM tax represents a charge that EV drivers might not have previously considered when taking the leap into the electric space.
Removing some of the tax benefits that come with owning an EV could risk slowing down the transition to net zero, although “trying to introduce a new tax system later will only become more difficult”, said the Institute.
That puts the impetus on Reeves to make some serious considerations over the matter ahead of next Wednesday’s Budget.