A switch to a pay-per-mile road charging system underpinned by telematics is essential to plug a £35bn tax shortfall in the mass switch to EVs.

The call comes from MPs on the Transport Committee in a new report saying the Government must have ‘an honest conversation with the public’ about the future of road pricing.

While such a move would prove unpopular with drivers, the committee warns that it has not seen a viable alternative to a road charging system based on telematics technology which measures road use.

And it’s urged the Treasury and Department for Transport to join forces to set up an ‘arm’s length body’ to examine solutions and recommend a new road charging mechanism by the end of 2022.

Without action, the UK faces a major shortfall in tax revenues due to the ban on the sale of new petrol and diesel vehicles from 2030. Neither fuel duty nor Vehicle Excise Duty are currently levied on electric vehicles and without reform, this will result in zero revenue for the Government from motoring taxation.

Saying that it’s “time for an honest conversation on motoring taxes”, Huw Merriman MP, chair of the Transport Committee, warned that the loss of two major sources of motor taxation will leave a £35bn black hole in finances – 4% of the entire tax-take.

“Only £7bn of this goes back to the roads; schools and hospitals could be impacted if motorists don’t continue to pay.”

He added that a road pricing system, based on miles travelled and vehicle type, would enable the Government to maintain the existing link between motoring taxation and road usage. Such a system would price up a journey based on the amount of road, and type of vehicle, used. It would also be able to offer better prices at less congested times and have technology compare these directly to public transport alternatives.

But in its report, the result of an inquiry opened in December 2020, the committee has made several caveats for the Government when replacing the existing motoring taxes with a charging mechanism.

These include ensuring it entirely replaces fuel duty and Vehicle Excise Duty rather than being added.

It must also be revenue-neutral with most motorists paying the same or less than they do currently; the Government must examine how it could be delivered alongside devolved local road charging schemes, ensuring motorists don’t face “unfair double taxation” while respecting the existing devolution settlement.

The work should consider the impact on vulnerable groups and those in the most rural areas, and should not undermine progress towards targets on increased active travel and public transport modal shift; and it should also ensure that any data capture is subject to rigorous governance and oversight and protects privacy.

And while the report calls for drivers of electric vehicles to pay to maintain and use the roads which they drive on, as is currently the case for petrol and diesel drivers – it says incentives must remain for motorists to purchase vehicles with cleaner emissions.

Huw Merriman commented: “Work should begin without delay. The situation is urgent. New taxes, which rely on new technology, take years to introduce. A national scheme would avoid a confusing and potentially unfair and contradictory patchwork of local schemes but would be impossible to deliver if this patchwork becomes too vast. The countdown to net zero has begun. Net zero emissions should not mean zero tax revenue.”

The reaction: “Time to get started on road pricing”

For many fleet and motoring organisations, the reaction has been that it’s about time the Government sorts this – but in a fair and equitable way.

The BVRLA, which was involved in the committee’s inquiry and had already urged the Government to develop a scheme now, welcomed the call for urgent progress but reinforced the need for immediate improvement in the systems that would make any new road pricing solution a success.

Director of corporate affairs, Toby Poston, who gave evidence to the committee in October, told policymakers to “get off the fence” and start providing a roadmap for the future of motoring taxation.

He added: “BVRLA members have set out their road pricing principles, and we are delighted that the Transport Select Committee agrees with so many of them, particularly the need to make any system revenue-neutral and think about the needs of essential road users.

“Like the committee, we think the work should start now and the fleet sector is ready to help explore the technologies and policies that will deliver an efficient and effective road pricing system.

“A key role in the implementation of the required technologies sits with multiple government agencies. We need to see them working in close collaboration, receiving additional support in order to meet the challenges of this monumental shift.”

The AA also said that it had been obvious for some time that a tax rethink would be needed in the transition to zero-emission vehicles.

Edmund King, AA president, said: “Whilst our polls show many drivers accept the principle of ‘pay-as-you-go’, they don’t trust politicians to deliver a fair system. Hence we agree with the committee that any new taxation proposals should be put forward by a body at arm’s length to Government and any new scheme should be revenue-neutral and we believe the charges should be set independently. The committee also says any new system should totally replace fuel duty and VED whereas we believe a transition period would be required to still encourage the take-up of EVs.”

The association itself had previously suggested a particular system of road pricing that could ensure a fair approach that takes into account those in rural areas or with disabilities.

“Whatever system put forward must be equitable or it will back-fire,” added King.

Meanwhile the RAC said its research had suggested that drivers broadly support the principle of ‘the more you drive, the more tax you should pay’, with nearly half (45%) saying a ‘pay-per-mile’ system would be fairer than the current regime.

Head of roads policy Nicholas Lyes said: “Whatever any new taxation system looks like, the most important thing is that it’s simple and fair to drivers of both conventional and electric vehicles. Ministers should also consider ringfencing a sizeable proportion of revenue for reinvestment into our road and transport network.

“The Treasury needs get moving on this sooner rather than later.”

And Tanya Sinclair, policy director – UK & Ireland at ChargePoint, said the firm was in support of road pricing as long as it was designed with drivers and EVs in mind.

“EVs use the road like any other vehicle and should contribute appropriately, especially when it comes to reducing overall congestion. With electric vehicle numbers on the rise, the era of ‘freebies for EVs’ in motor taxation is coming to its end.

“But clear communication of this change is vital. With government’s transport decarbonisation targets, the end of sale of petrol and diesel vehicles and a zero-emission vehicle mandate all on the horizon, EV drivers are entitled to know from the government what the future of road pricing will look like for them. And the charging industry, whose growth and success is reliant on EVs using charging services, will also benefit from this clarity.”

To access the Transport Committee’s Road Pricing report, click here.