Pay-per-mile could make up for loss of fuel duty cash cow

MINISTERS are considering plans to scrap fuel duty and replace it with a pay-per-mile charging scheme.

The rise of electric cars has led to warnings that the £28billion raised annually from fuel duty is at risk.

Michael Gove, the Environment Secretary, has announced plans to ban the sale of new petrol and diesel cars from 2040.

Ministers are understood to be examining proposals by this year’s winner of the £250,000 Wolfson Economics Prize.

Gergely Raccuja, a 27-year-old transport graduate from UCL, proposed abolishing fuel duty and vehicle excise duty in favour of a simple distancebased charge.

Heavier and more polluting vehicles would pay more, and the charge would be collected by insurers.

He suggests that 20 per cent of the funds raised should be ring-fenced to repair roads and tackle potholes.

Steve Gooding, the director of the RAC Foundation, which supported Mr Raccuja’s submission, said: “Every Chancellor loves fuel duty because it is the cheapest of all taxes to collect and pours huge sums into the Exchequer.

“But with the war against the internal combustion engine gaining momentum and ministers encouraging drivers to go green, this particular money tap is set to run dry.

“Sooner than the Treasury might think, a new system of motoring taxation will be needed.”

Policy Exchange, a think tank, has estimated that fuel duty receipts could be as low as £17billion by the end of the next decade if the Government meets carbon targets.

Richard Howard, director of energy at the think tank, said: “The Government’s ambition to shift from conventional vehicles to electric vehicles is laudable, but they should not underestimate the impact this will have on public finances.

“Our analysis shows that if we successfully reduce emissions in line with targets set by the Committee on Climate Change, then fuel duty receipts could actually fall sharply to £17 billion by 2030. On a cumulative basis, this represents a loss of up to £170billion in tax receipts between now and 2030.

“This could have a significant impact on public finances and the Government may need to look at other ways to plug the gap, such as road user pricing and congestion charges.”