Taxman faces £28bn hit from the electric car revolution

‘Virtually no revenue from driving’

THE Treasury is facing the loss of £28billion in revenue as people switch to tax-free electric cars, say experts.

The Government has pledged to make Britain carbon neutral by 2050, which means it will lose revenue from fuel duty.

This has fallen by nearly £19billion a year since 2000 and all £28billion will soon be lost if the system does not change, according to a think-tank.

Boris Johnson is said to be pressing for fuel duties to be cut by 2p per litre in the forthcoming Budget.

This would cost £1billion a year in lost revenue on top of the £5.5billion lost since 2010-11 arising from the failure to increase rates in line with inflation, the Institute for Fiscal Studies reported.

Revenue from fuel duties now stands at £28billion a year, which is 1.3 per cent of national income after peaking at 2.2 per cent of national income in 1999-2000, the IFS says. Had it remained at that level, the Treasury would currently be getting an extra £19billion, according to the report.

But the Government’s commitment to reaching zero net emissions by 2050 means that revenue from fuel duties will completely disappear over the next few decades, it said.

The IFS called for new taxes which can gradually replace fuel duties. ‘These should reflect at least distance driven, and ideally vary according to when and where journeys take place,’ it said.

Those driving in busy places would pay more, but most journeys would be taxed less heavily than at present, it added.

Rebekah Stroud, a research economist at the IFS and co-author of the IFS Green Budget, said: ‘Another 2p cut [in fuel duty], as reportedly mooted by the Prime Minister, would cost a further £1billion a year. The bigger challenge is that revenues are now set to disappear entirely over coming decades as we transition to electric cars.

‘The Government should set out its long-term plan for taxing driving, before it finds itself with virtually no revenues from driving.’