Energy UK has joined up with motoring organisations to urge Philip Hammond to commission an independent and wide-ranging review into how the UK will cope with the collapse of road fuel duties that will be triggered by a shift to electric vehicles.

The energy body has signed a joint letter to the chancellor of the exchequer to commission the review into the transition from the existing vehicle excise duty, which is levied on fuel, to a new system of charging to use the roads.

The Treasury currently collects an estimated £27 billion per year from car-based fuel duty, vehicle excise duty and benefit-in-kind taxes.

The letter calls on the government to:

  • Commission an independent and wide-ranging review into the modernisation of the motoring tax system for a zero-emission future.
  • Focus on delivering a fair, transparent and adaptable national motoring tax regime capable of funding the UK road network and driving behaviour change that reduces congestion and air pollution.
  • Develop a national road-user charging policy that can support cities and regions if they choose to implement local motoring charging schemes.

The other signatories to the letter are the British Vehicle Rental and Leasing Association (BVRLA), Cambridge Econometrics, Centre for London, DriveNow, Ricardo and Zenith.

All of the signatories have contributed to a report, published today (4 March), which explores the issues involved in the transition to a new roads tax system.

The report points to the impending decline in revenues from the current CO2 emissions-based regime and highlights the potential for a new tax system that could help tackle devolved transport priorities including urban air quality and congestion.

Cambridge Econometrics says that phasing out existing road taxes by 2030 would result in losses of approximately £2 billion per annum for the Exchequer, which works at around 0.3 per cent of total revenues.

Gerry Keaney, chief executive of the BVRLA, said: “We want the report to kick-start a process of change, with industry working with the Treasury. A taskforce with the kind of expertise shown in the report will help drive this forward.

“The exciting vision set out by the government’s Road to Zero report and Industrial Strategy demonstrates that transport is a priority. UK policymakers have been busy creating the right infrastructure and regulatory environment for connected, autonomous and electric cars. Now is the time to look at tax.

“It is time to go back to the drawing board and explore how the fiscal regime could also make roads safer, less congested and fit for the future.”

In his foreword to the report, Keaney writes: “The advent of increasingly connected, electric and shared road transport is challenging this fiscal status quo. Today’s CO2 emissions-based tax regime has a limited shelf-life and is not effective enough in tackling increasingly devolved policy priorities, such as urban air quality and congestion.

“Motoring tax needs a rethink. Failure to act now or even signal the direction of future taxation is already threatening to hold back the Road to Zero vision.”

Commenting on the report, Audrey Gallacher, director of policy at Energy UK, said: “Electric vehicles, powered by increasingly low carbon electricity, are now the cleanest choice to make and will be an ever more common sight on UK roads through the 2020s. BVRLA’s report shines a light on some of the changes that will occur as a result, in particular, the impact on government revenue.

“Energy UK is clear that we must avoid blunt recovery methods such as transferring existing vehicle taxes onto electricity bills – a highly regressive approach that would negatively impact vulnerable customers – and instead examine in detail the potential for more sophisticated and smarter options as highlighted in the report.”

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