Electric cars could pay taxes per kilometer

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Electric cars are likely to be fitted with tracking devices as part of proposals for a road mileage charging system put forward by the government’s own climate advisers.

The Committee on Climate Change (CCC) says the government must find ways to fill the ‘significant hole’ in public finances left by the loss of fuel duties and other taxes when petrol and diesel cars are replaced by electric models.

The new report also calls for the cost of renewable energy projects to be moved from electricity bills to general taxation, a move it says could cut energy bills by £90.

On electric cars, the CCC said a “reasonable and fair” approach would see the costs covered by drivers, rather than general taxation, arguing that some form of “road pricing” is needed under which drivers are charged for how much they drive.

Potential approaches, he added, range from “a simple charge per kilometer travelled, which could be levied on the basis of annual odometer checks, to more sophisticated systems that vary the charge depending on the time of day or location/type of road used, based on vehicle tracking technologies.

The CCC said the government must explore the policy now so that it is ready for implementation this decade. The sale of new petrol and diesel cars is set to be banned in 2030. Introducing a new tax system at an “early stage” will help avoid a situation where drivers “start to assume that driving electric vehicles will always be tax free,” the CCC. said.

Chris Stark, Chief Executive of the CCC, added: “The Chancellor has many billions of reasons to be concerned about this transition to electric vehicles, unless he has some form of alternative tax regime that will take into account from lower fuel tax revenues.

Currently, petrol and diesel drivers pay a fuel tax of 52.95p a litre, bringing in £28billion for the government last year. Petrol and diesel are also subject to 20% VAT. In contrast, electric car divers do not pay fuel tax, and VAT on household electricity is only charged at 5pc.

“Together, these differences mean that the transition to electric vehicles is likely to leave a significant hole in public finances if alternative taxation schemes are not introduced,” the CCC said. There are currently around 462,050 battery electric vehicles on UK roads, according to RAC estimates, up from 207,051 in 2020.

The pay-per-kilometre proposals are among a wide range of CCC recommendations for the government in its latest progress report on tackling climate change. They include the transfer of subsidy costs for old renewable energy projects from electricity bills to taxation. The move could shave around £90 off energy bills, which are currently at an all-time high of £1,971. Lord Deben, chairman of the CCC, said it would be “fairer”.

The CCC warns that the government risks missing its carbon reduction targets because delivery has not yet caught up with the policies in place.

“There are some positives for progress, but in most areas the likelihood of underdelivery is high. This is a super-fast approach to Net Zero,” he said.

A government spokesman said the UK had “reduced emissions faster than any other G7 country, and we have clear plans to go further”.

“The UK is ahead of most other countries with around 40% of our electricity now coming from cleaner and cheaper renewables,” the spokesperson added.

“This is backed by £6bn of funding to make our homes and buildings more energy efficient, planting up to 30,000 hectares of new trees a year and more electric cars on our road than ever before – decarbonizing our cars and vans faster than any other developed country.

“We lead the world on climate change, helping more than 90% of countries set net zero targets during our COP26 presidency – up from 30% two years ago.”

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