Re-charging Britain’s road policy

Transport Knowledge Hub logo Published on: 28th April 2021 by Professor David Begg Claire Haigh.

We stand at a crossroads on UK roads policy. The more we incentivise the take up of electric vehicles the more it costs in government grants and the less revenue the Treasury collects in fuel duty.  We are facing a black hole of around £40 billion in our public finances when the fleet is fully electric.

We need to find a new way to pay for roads that plugs this gap and is right for tackling climate change, poor air quality, congestion, and the inequity of those on low income being priced out of purchasing an electric vehicle and is right for the public finances.

Road pricing has been one of the best fiscal changes that any government could have made over the last generation. It has always been the most effective way to tackle congestion and pollution.  The showstopper is that it has been seen as politically too difficult.  What has changed, however, is that we now face a new dilemma.

With petrol and diesel vehicles to be replaced, who pays for Britain’s roads?

The tricky problem to solve is how to phase in road pricing in a way which can be delivered politically and doesn’t disintentivise the switch to electric vehicles.  We need a system that can levy tax on all road users fairly.  It would be inequitable in the extreme if road infrastructure was financed from general taxation. This would mean non car owners, a high percentage of them on low income, cross subsidising motorists.

As part of its evidence to the Transport Select Committee inquiry into Zero Emissions Vehicles and Road Pricing, Greener Transport Solutions has put forward proposals for a national road pricing scheme.

The 2030 ban on sales of new petrol and diesel cars provides a window of opportunity to make a mandatory change in how we pay for road use.   Government should signal that from 2030 fuel duty and Vehicle Excise Duty (VED) will be replaced by new road user charge based on distance and time, which will apply to all road vehicles.

To be politically deliverable the new road user change should be implemented in stages.  Road users should be given a clear time horizon of how motoring taxation is going to evolve. They should be incentivised and encouraged to opt in, to build critical mass ahead of it becoming mandatory.  It may be cost effective for drivers in rural areas for example to switch from paying fuel duty in most circumstances.

The new road user charge should be independently determined and monitored and should not in aggregate cost more than the current system.  It may save road users money if they travel at less congested times.  The move away from VED shifts the burden of taxation away from fixed annual costs towards variable running costs.  Shifting the burden away from ownership to use increases the propensity to walk, cycle or use public transport.

Enhanced EV grant offers should be used to incentivise wider take up of EVs, in exchange for committing to pay the new road user charge.

Car buyers will be offered a third off the price of an EV for models up to £35,000.  Crucially this offer will also apply to buyers of second hand EVs, and drivers who scrap their old polluting vehicles of more than 10 years old can receive an additional £3,000 credit towards the cost of an EV.  To ensure that they are not penalised for early adoption, existing EV owners will be given the opportunity to top up their grants if they commit to their vehicle to the new road user charge.

The new charge needs to be seen to be transparent and fair.  This can be achieved by establishing a new independent body to set motoring taxation.

We recommend Government sets up a Commission with cross party representation to agree a way forward on motoring taxation and delegate authority to an independent body such as the Office of Road and Rail (ORR) in consultation with the Office of Budget Responsibility (OBR) to set motoring taxation going forward.   The precedent for this is taking the politics out of the setting of interest rates and leaving it to the Bank of England to make the decisions which are right for the economy.

The new ORR/OBR body will be tasked with establishing the right level and mix of motoring taxation to meet targets in public finances, road infrastructure, and set targets for congestion and air quality.  One of the first proposals we could anticipate is a ten-year trajectory for fuel duty increases to encourage the take up EVs and the switch to more sustainable modes.

Once the new road user charge is established, and a clear trajectory for annual fuel duty increases set, the opportunity will be to use platforms such as Mobility as a Service to incentivize the switch to more sustainable modes.

We need to ensure that new disruptive technologies, the now ubiquitous Uber and the ever-increasing switch to online shopping work in the interests of society.  Changing how we pay for road use is central if this objective is to be achieved.

It’s time for an honest conversation about motoring taxation.

The investment case for funding the proposed new EV grants is compelling, as Government would effectively be investing in a new revenue stream to replace the billions it currently receives in fuel duty and VED.  With interest rates so low, now is the right time to invest in greening the fleet to secure a guaranteed annual revenue stream.

The proposed national road pricing scheme, combined with new EV grants offer, would deliver on key government priorities.  It would accelerate the take up of electric vehicles, support the levelling up agenda, boost manufacturing and make the UK a climate leader on the decarbonisation of transport.

Re-charging Britain’s road policy by Professor David Begg and Claire Haigh is published today by Greener Transport Solutions

About the Author

This post was written by Professor David Begg Claire Haigh. David is CEO of Transport Times and a former Government transport adviser. Claire is founder and CEO of Greener Transport Solutions