Motoring Alan Judd
NEW NAME, SAME OLD TAX
When Chancellors of the Exchequer proudly announce that they’re freezing fuel duty at current levels, as they have every year since 2011, we welcome it almost as a tax cut. Our relief obscures the fact that 57.9p of every litre of fuel we buy is tax, plus VAT on the pre-tax price, plus VAT on the tax itself. As with PAYE, if we were more conscious of it – particularly the tax-on-tax element – governments would be hard put to get away with it. Yet, despite being a major source of revenue – £28.3 billion this financial year – the days of fuel duty must be numbered.
The reason is another aspect of government policy: electrification. With the proposed 2040 ban on the sale of new petrol and diesel vehicles, with city councils plotting to levy punitive access charges on their poorer residents (who can afford only older vehicles), and with the EU imposing ever-lower fleet average CO2 figures on manufacturers, more drivers will opt for EVS (electric vehicles), which pay no fuel duty. Estimates are that, by 2025, a tenth of all new vehicles across Europe will be electric. London’s leading think tank, Policy Exchange, estimates that, by 2030, the government could lose up to £170 billion in fuel duty. Something must replace it, but what?
We don’t hear much about it, but we can be sure that officials in the Treasury and elsewhere are looking at alternatives. No announcements yet, of course – after all, when is a good time to announce a new tax on something you’re trying to encourage? – but there are hints. Last year, Autocar spotted on the website of the Office for Budget Responsibility a sotto voce agreement with HMRC to ‘investigate the potential impact of changes in the vehicle stock and its implications for trends in fuel efficiency’. That innocuous bureaucratic phrasing may look like a cloud no bigger than a man’s hand, but it will grow. It has to. Where would they start?
They could tax the electricity used by an EV, perhaps monitoring remotely whatever portion of the 327 billion miles driven in the UK every year are covered by EVS. But that sounds complicated and technically vulnerable. So perhaps instead, you could be charged when you charge your car – except that you’re not taxed on the domestic electricity most people use for charging.
An alternative would be one of those taxes that, like a poll tax, dare not speak its name: road pricing. Effectively, this is little different to fuel duty, in that the more you drive, the more you pay, but it nevertheless proved toxic when David Cameron floated the idea. It would also, presumably, necessitate a greatly expanded roadside camera network, almost universal surveillance and retrospective collection of tax, which could be problematic. A variant was proposed by the president of the AA, Edmund King, and his economist wife, Deirdre, under which no one would be taxed for the first 3,000 miles, with rural and EV drivers getting a higher allowance. Thereafter, mileage would be recorded and tracked by the car’s computer system or, with older cars, retrospectively at MOT time. Collection might still be problematic, not least because drivers would be more aware how much they’re paying.
Whatever Whitehall committees are considering, we can be sure some new tax is trundling down the road towards us. And they’ll do all they can to make it no less burdensome, and no more obvious.