The two principal motoring taxes, fuel duty and vehicle excise duty, make a significant contribution to HM Treasury revenues. Taken together, vehicle excise duty and fuel duty raise some £35 billion a year, which comprises approximately 1.5% of UK GDP. That sum is forecast to equate to approximately 4% of overall tax receipts in 2021–22. We estimate that the revenue raised by fuel duty is equivalent to approximately five pence on the rate of income tax. Policies to deliver net zero emissions by 2050 are likely to result in zero revenue for the Government from motoring taxation by 2040. In addition to generating taxation to fund essential public services, motoring taxation plays a key role in managing congestion by regulating demand to use public roads. If the Government fail radically to reform motoring taxation, the UK faces an under-resourced and congested future.
In our inquiry, we heard that the public are concerned how new forms of motoring taxation might affect their household budgets and mobility. We recognise those concerns. In designing a replacement for fuel duty and vehicle excise duty, the Government must ensure that any new motoring taxes entirely replace fuel duty and vehicle excise duty, rather than being added alongside those taxes, and result in most motorists paying the same or less than they do currently.
The Government must act now on this agenda. The taxes imposed by fuel duty and vehicle excise duty are increasingly duplicated by local schemes that charge motorists for entering congestion zones and clean air zones. The growing patchwork of devolved schemes may make it impossible to deliver a national road pricing scheme, because the simultaneous operation of local and national road pricing schemes would create confusion and unfair double taxation.
The Treasury is responsible for taxation policy, including motoring taxation; the Department for Transport is responsible for road connectivity. The Government must work on a cross-departmental basis to join up policy on maintaining tax revenues, facilitating road connectivity and supporting the shift to zero emission vehicles. To that end, the Department for Transport and the Treasury must work together to (a) set out their preferred options for replacing fuel duty and vehicle excise duty and (b) establish an arm’s-length body with an appointed individual to evaluate the potential merits of those options.
The situation is urgent. The arm’s-length body should be tasked with recommending an alternative road charging mechanism to replace fuel duty and vehicle excise duty by the end of 2022. One of those options should be a road pricing mechanism that uses telematic technology to charge drivers according to distance driven, factoring in vehicle type and congestion. If motoring taxation is linked to road usage, the Committee has not seen a viable alternative to a road pricing system (based on telematics).