The recently elected Labour government claims a fiscal black hole in the country’s finances is due to tax exemption for electric powered vehicles (EVs).
The Driving Sense* team of analysts has looked at the claims and identified inconsistencies which indicate beyond doubt there isn’t a black hole in the nation’s vehicle-based tax revenue.
Three years ago, Driving Sense – also known as The Alliance of British Drivers – advised an All Party Parliamentary Group that the simplest and quickest way to offset any tax reduction would be the introduction of a special electricity tax (SET) levied for charging EVs. We recommended this approach because ‘SET, like road fuel tax, is simple to collect, difficult to avoid with individual metering, and avoids all the costs and privacy concerns of road pricing’.
SET could be rated to ensure the Treasury received the same tax yield as for petrol and diesel vehicles, varied by the mass of the vehicle. It really is that simple. There is no requirement for a separate and expensive road pricing scheme, currently under consideration by the Government.
Road pricing schemes involve vast expenditure on infrastructure, flexible pricing tariffs and payments systems. None are necessary if the SET proposal was adopted. Driving Sense concludes the move to road pricing is ideologically driven and nothing to do with fixing the country’s finances – let alone the supposed black hole.
We arrived at this conclusion after reviewing the Government’s figures. There are 41.4 million vehicles on the UK’s roads – of which 1.1 million are EVs (less than three per cent of road users). If drivers of EVs did exactly the same average mileage as those driving petrol and diesel vehicles, we estimate the loss to the Treasury of a maximum of £0.7billion per annum. Most likely two-thirds of that figure. That loss can be simply recovered by increasing fuel duty on us overcharged ICE car drivers by 2p, so no need for massive hikes – but that isn’t what Labour want.
We have to take into account that the 41.4 million vehicles on UK roads include buses, which are, for the vast majority diesel powered and therefore pay fuel duty, and trucks which are not electrified and also taxed, unlike EVs. It has proved ‘problematical’ to identify how 1.1million EVs could cause such economic disruption when compared to vast revenues accrued from road usage.
Our proposals for a SET tariff would allay marginal loss of revenue to the Treasury at minimal infrastructural costs, transport disruption and further bureaucracy to underwrite this proposed policy. The tax-take from road use far outweighs the money spent on making our roads safer and fit-for-purpose. Road use has become an enormous revenue generating scheme for any government.
It is our view that the diminished tax returns from EVs do not justify a road pricing policy under any circumstances, and it is our further calculation that the purported £0.7billion figure is no more than a simple rounding error in the Government’s finances. Most drivers already pay fuel duty that is a very economic method of pricing road use and our SET proposals reflect that approach when applied to EVs and introduces fairness for ALL drivers, regardless of motive power – perfect during any transition.
