Rising take-up of electric vehicles is expected to cost £13bn a year in forgone fuel duty by 2030.

The OBR report warns that “several tax bases are at risk of being eroded by behavioural or technological changes”

That’s according to latest figures from the Office of Budget Responsibility, which put added pressure on the Government to explore alternative approaches such as road user pricing.

The OBR’s latest Fiscal Risks and Sustainability Report warns that “several tax bases are at risk of being eroded by behavioural or technological changes”. It adds that this is particularly true for emissions-linked taxes as the UK transitions to net zero.

The report says that since the 2021 report, there has been an acceleration in the uptake of electric vehicles, increasing the pace at which fuel duty revenues are eroded.

But while it notes that the “receipts will fall away faster” as more people switch to electric vehicles in the near term, it says the long-term fiscal risk has decreased following the Government’s decision in the Autumn Statement 2022 to make electric cars and vans pay vehicle tax from 2025. This will help mitigate the erosion of VED, which raised over £7bn in 2022/23 – but the almost £25 billion raised from fuel duty remains at risk.

The report also notes that EV adoption over the past five years puts the UK slightly above the European average and well above some other major advanced economies such as the US and Japan, although still behind Norway, where EVs reached 88% of sales in 2022. SMMT car registration figures for the UK show fully electric cars took a 16.6% share in 2022 – and the OBR notes that take-up slowed last year, possibly due to the supply chain issues, falling consumer confidence or increases in electricity prices compared to a drop in petrol prices.

Time for a rethink on motoring taxation

Last month saw think-tank Resolution Foundation publish its take on the future of road pricing, addressing the shortfall in tax receipts from car electrification. Proposals included a six pence-per-mile rate proposal for EV drivers.

New research from Startline Motor Finance however shows more than half (57%) of motorists would be against such a move.

Its July Used Car Tracker found 55% believe such an approach would not be fair while 40% say that EV tax should be kept low by the Government in order to encourage take-up. Also, 22% don’t like the idea of road pricing for any vehicle.

Just 10% of people in the research agreed that EV drivers should pay the same as petrol and diesel, and just 9% thought the six pence-per-mile figure was the right way for the Government to make up the tax shortfall.

Paul Burgess, CEO at Startline Motor Finance, said: “It looks like there are really two key messages here from those who took part in our research. One is that people think EV taxation should be kept low in order to encourage more people into electric cars, and the second is that road pricing is not the preferred method to recoup lost tax.

“However, it also looks as though there is quite a lot of resistance to the idea of road pricing in general, which could give politicians and other bodies with an interest in how cars are taxed something to mull over. It has long been widely assumed that the UK will move over time to a pence-per-mile model for tax but it may be something that voters just don’t like.”

He added: “It could be that legislators need to go back to the drawing board and identify new ways of taxing EVs that have more voter appeal.”