Chancellor mulls forcing electric cars to pay road tax by 2025

Vehicle Excise Duty move being considered by the Treasury to help plug hole in public finances

OWNERS of electric cars and vans could be hit with road tax bills in less than three years, under plans being considered by Jeremy Hunt for the Autumn Statement.

A Whitehall source claimed it was now inevitable that electric vehicles would be subject to road tax “at some point”, adding that the Treasury was considering “when that should be”.

One of the options being considered by the Treasury to help plug the projected hole in public finances is to require owners of electric vehicles to begin paying Vehicle Excise Duty from the 2025/26 financial year.

Mr Hunt is separately examining ways to reduce or scrap reliefs and allowances currently offered as part of capital gains tax.

A Government source said the Chancellor was responding to “an emergency situation that will require tax rises and spending cuts to stabilise the markets and put our finances on a more sustainable footing”.

But today, Kit Malthouse, who quit as education secretary last week, and Jacob Rees-Mogg, who was Liz Truss’s business secretary, both issue warnings about potential tax hikes, after Mr Hunt’s earlier decision to reinstate the planned corporation tax increase from next year.

Writing in this newspaper, Mr Malthouse said that companies simply pass on tax to consumers, stating: “They just price it in as an overhead, so consumers pay tax for them when we buy their goods or services.”

He also called for Rishi Sunak and Mr Hunt to focus public spending on core priorities, as he questioned why a transport minister “had boasted at the despatch box that the Government plans to spend £9.9billion on cycling and walking objectives”.

In a separate interview with this newspaper, Mr Rees-Mogg said: “I think there is a natural limit to how much tax an economy will pay, and that you can do whatever you like with the rates, but that actually people aren’t going to pay very, very high rates of tax.

“There are stories that capital gains tax might go up. Capital gains tax is a voluntary tax. How do you not pay capital gains tax? You don’t sell something.”

Earlier this year, MPs warned that the £35 billion annual revenue from vehicle excise duty and fuel duty was set to fall to zero by 2040. The transport select committee has called for all drivers to be charged based on the distance they travel.

A Whitehall source said: “Everyone knows that electric vehicles will have to be subject to road tax at some point. The Treasury is considering when that should be, while ensuring uptake isn’t disincentivised in the short-term.”

Currently, zero vehicle excise duty is paid on electric vehicles, with the government previously guaranteeing the exemption until at least 2025 – the point at which the Treasury is now considering levying the tax on zero-emission cars and vans.

The move would come five years before the planned 2030 ban on the sale of new petrol vehicles, leaving officials examining ways in which those buying new electric vehicles do not face an immediate penalty.

Meanwhile, Conservative MPs are calling for a “crazy” tax cliff edge to be removed from the Government’s flagship childcare support scheme.

A report by Policy Exchange, a centre-Right think tank, warned that people who claim tax relief on childcare and earn over £100,000 are hit with an effective 97 per cent rate of income tax.

Relief of up to £2,000 a year is withdrawn altogether for the top earners, meaning that an individual with two children earning £123,700 is only £760 better off than someone earning £99,000, the think tank said.

Harriett Baldwin, who is running to be chairwoman of the Treasury Select Committee, said the Chancellor should review the policy.

“I believe it’s really important that families get help with childcare, because it benefits everyone if women can stay close to the workplace during the period that they have small children,” she said.

Sir John Redwood, a former Cabinet minister, said removing the tax cliff edge would benefit NHS doctors.

“It’s crazy, and I think they should do something about all the anomalies around £100,000 as part of the health service package,” he said.

“They do need a better work plan and package of retention and recruitment and this really does affect quite a lot of doctors.”

‘Emergency situation requires tax rises and spending cuts to stabilise the markets and put finances on a more sustainable footing’