Select Committee on Treasury Appendices to the Minutes of Evidence


Memorandum by the Automobile Association (AA)



  The UK's system of taxing and charging motorists for the ownership and use of their cars is archaic and needs reform in the light of the many initiatives now announced.

  The Committee may want to question the Chancellor and Treasury officials on reforming Britain's obsolete system of motoring taxation and charges.


    —  The Chancellor has deservedly earned a reputation as a moderniser—his reform of the road fund licence has moved this regressive tax to a progressive tax targeted to enourage the purchase of more fuel-efficient cars. The AA worked with Treasury to define the four VED bands that would achieve popular support among motorists.

    —  In the 1999 budget, the Chancellor accepted in principle an element of fuel tax could be ring-fenced for "additional" investment in roads separated from the taxation to support general expenditure. The AA welcomed this as a first step towards modernisation. Parliament has also agreed that workplace charging and congestion charging proceeds should be ring-fenced "additional" investment. Bridge/tunnel and motorway tolls also flow directly to the infrastructure. However, a rational series of funds cannot be established until the missing element of the road tax and fuel tax that goes to support existing levels of road expenditure is also separately identified. Only then can "additional" be defined. The greater private sector involvement the Government seeks will be helped by having clearly established funds and income streams.

    —  With this missing element identified, both the charges to use roads and the tax for general expenditure can be clearly displayed at the pump. The amounts motorists are paying to use roads and the amounts that they are contributing towards general public spending can then be transparent. Only through modernisation and transparency can trust be restored in a system that is now so discredited in the eyes of motorists.

    —  The AA has researched what mix of road tax and fuel tax reductions motorists would prefer. In the past, a small majority has preferred to pay less road tax. Many lower income motorists find six months road tax a difficult lump sum payment to find in the family budget. With graduated VED, it is possible also for the Chancellor to target reductions towards smaller and medium sized vehicles. There are social, transport, and environmental arguments pointing towards lowering the fixed cost of motoring.

The review of taxation

  Below is a concise summary of why the AA believes that there are six main reasons why Britain's current motoring taxation system needs urgent reform:

  Trust Motorists have little trust in it. Motorists were outraged in the last two years when then found out how high taxation has become (fuel tax is 76-80 per cent of a litre) and how little of the money they pay is now actually spent on the roads (around 14 per cent). All this had happened without open discussion and was possible because of the lack of transparency in the system. The tax motorists are paying for fuel is not even posted on petrol pumps.

  Investment The Government has a new 10-year transport plan. There is overwhelming popular support for investment in transport. Delivering the investment needs explicit new funds and income streams if modern ways of private finance are to work efficiently, and the agencies and companies responsible are to be made accountable for their performance. The Chancellor has announced two national initiatives which are underdeveloped. First, the "vignette" for motorway use by lorries. Second, that a portion of fuel tax in principle could be ring fenced for an investment fund.

  Congestion and Workplace Charges The Government has legislated to allow local authorities to levy a "congestion charge" on motorists for driving in cities and for parking at work. The idea implemented elsewhere in the world is that charges are made only at busy places and times to meter traffic, and then other taxes on motorists are reduced to compensate. In Britain, the legislation says the extra money raised can be kept and used for additional transport. But without separate transport funds containing existing revenue, this is a pledge that has little meaning eg additional to what? In London, it is becoming clear that "congestion charges" are seen by many as little more than rhetoric and a convenient tax to boost an over-stretched general revenue account.

  Motorway Tolling and Technology Britain's first tolled motorway around Birmingham is coming to construction. The Government has put legislation on the statute book to permit motorway tolling. It is pursuing new internationally agreed standards for electronic tolling systems that are likely to follow after the vignette. Developments worldwide like the Birmingham Northern Relief Road, the Versailles Tunnel in Paris, and pay lanes in the US and Holland are pointing towards charges that change by the time of day and are paid electronically. On the M25 at Dartford, payments are accepted electronically, as they are on many toll roads worldwide.

  Environment Taxation, as with unleaded petrol and ultra low sulphur fuel, can be used to help the environment. The system of road tax and graduated VED is getting more complicated. People need to see clearer, more consistent patterns of taxation.

  Social and Rural Policy Leading economists agree that there should be much higher charges on congested city roads during busy times and that motorists pay far too much today on uncongested rural roads. Social policy experts say the same thing. People on low incomes need their cars outside cities yet they pay more in motoring taxes and have little or no alternatives. If there were real trust that changes would be revenue neutral, the way we pay for motoring might be evolved to make the transport system fairer and more efficient.

AA proposals for reforms

    —  Revenue from motoring taxes should be separated into a charge for the provision of road related services and a tax for general government expenditure;

    —  VED should reflect the environmental performance of cars and Treasury should review whether the relative safety of cars should also be reflected;

    —  Where congestion charging is implemented motorists affected should be given reductions in fuel tax or road tax;

    —  A series of motoring funds should be developed as a mechanism for funding transport investment, with motorists knowing who they pay to, what they are paying, and what they are receiving back, in management, maintenance and network development.

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Prepared 9 April 2001