Electric vehicles could pay tax by the mile

ELECTRIC cars face being fitted with tracking devices under proposals for a pay-per-mile road taxation system put forward by the Government’s own climate advisers.

The Climate Change Committee (CCC) said the Government needed to find ways to cover the “significant hole” in the public finances left by the loss of fuel duty and other taxes when petrol and diesel cars are replaced by electric models. The new report also calls for the cost of renewable projects to be shifted from electricity bills into general taxation, a move it says could cut heating bills by £90.

On electric cars, the CCC said a “sensible and fair” approach would see the costs covered by drivers, rather than general taxation, arguing that some form of “road pricing” is needed.

Potential approaches, it added, range from “a simple charge per mile driven … to more sophisticated schemes that vary the charge based on the time of day or the location/type of road being used, based on vehicle tracking technologies”.

The climate advisers urged ministers to explore the policy now so it is ready to be implemented this decade.

The sale of new petrol and diesel cars is set to be banned in 2030. Introducing a new tax system at an “early stage” will help avoid a situation where drivers “begin to assume that EV driving will always be tax free,” the CCC said. Chris Stark, chief executive of the CCC, added: “The Chancellor has several billion reasons to worry about this transition to electric vehicles unless he has some form of replacement fiscal regime that will account for the dwindling revenues from fuel duty.”

Petrol and diesel drivers pay fuel duty at 52.95 pence per litre, bringing in £28 billion for the Government last year. Petrol and diesel are subject to 20per cent VAT. By contrast, electric car drivers pay no fuel duty, and VAT on domestic electricity is charged at 5per cent.

“All told, these differences mean that the transition to EVS is likely to leave a significant hole in the public finances if replacement taxation schemes are not introduced,” the CCC said.