Government plans to start tackling a £35bn fiscal black hole from the switch to EVs are expected to be announced in today’s Autumn Statement, including potential clarification on a switch to road pricing.

The Government is coming under increasing pressure to plug a growing black hole in vehicle-related income from the switch to EVs in the run up to the 2030 ICE ban

Tweeting ahead of the Autumn Statement, Meera Vadher, who acted as special adviser to Grant Shapps when he was transport secretary, said: “Tomorrow, @Jeremy_Hunt is expected to launch proposals on road pricing – a new form of taxation which will overhaul fuel duty and VED. Long awaited it takes a brave govt to propose wholesale change to the way we pay for driving.”

She then added in a latter tweet: “Worth saying we have been here before! Road pricing will be a massive change and the first step to closing the revenue gap may be to introduce road tax for EVs which could come into place sooner than any road pricing proposals. Atm EVs are exempt from the £165pa rate.”

Speculation had already been mounting that the Chancellor would announce plans to charge Vehicle Excise Duty for electric vehicles this week. 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.

The move would form part of efforts to plug a growing black hole in vehicle-related income from both VED and fuel duty and will become increasingly important in the run up to the 2030 ICE ban. A forecast from the Office for Budget Responsibility indicates that fuel duty and VED revenue will fall to £2.1bn by 2026/27, compared to the estimated £35bn that is currently raised.

In December 2020, the Treasury’s Net Zero Review Interim Report said the Government would need to consider how to offset these lost tax revenues and the Transport Select Committee opened an inquiry. The resultant report said that a switch to a pay-per-mile road charging system underpinned by telematics was essential to plug the tax shortfall in the mass switch to EVs. While the committee acknowledged such a move would prove unpopular with drivers, it warned that it had not seen a viable alternative to a road charging system based on telematics technology which measures road use.

Speaking yesterday, the RAC said the fact that the Chancellor was giving serious thought to how drivers pay for road use in the future was potentially a landmark moment in how drivers are taxed.

Head of roads policy Nicholas Lyes said: “As more electric vehicles come on to our roads, revenue from fuel duty and vehicle excise duty will decline, so it’s inevitable a new system will have to be developed. Our research suggests drivers broadly support the principle of ‘the more you drive, the more tax you should pay’, with more than a third (36%) saying a ‘pay per mile’ system would be fairer than the current regime – although three-quarters (75%) are concerned the Government might use such a system as a way of increasing the amount they are taxed.”

He added: “Whatever any new taxation system looks like the most important thing is that it’s simple, transparent and fair to drivers of both conventional and electric vehicles. It’s also essential that a new system replaces rather than runs alongside existing taxation regime. Ministers should additionally consider ringfencing a sizeable proportion of revenues raised from a new scheme for reinvestment into our road and transport network.”