Chancellor urged to hit EV drivers with pay-per-mile tax

The Labour government has been urged to introduce a pay-per-mile tax on electric cars to address a looming black hole in the country’s finances.

Transport campaigners have called on Chancellor Rachel Reeves to introduce the pay-as-you-drive levy on EVs and other zero-emissions vehicles to fill the gap left by declining fuel duty revenues. That loss of revenue is predicted to reach £5 billion per year by 2033 as drivers shift from petrol and diesel vehicles to electric models.

The Campaign for Better Transport claims the move would be the ‘easiest solution’ to the revenue issue and has the support of the majority of motorists.

The charity’s Silviya Barrett said: “The new Chancellor faces a looming black hole. She can avoid it, in a way which is fair, and which garners broad public support. But she should start now, as this issue will only get more pressing.”

CBT argues it is ‘only fair’ that EV owners pay ‘a share’ but that motorists should still be incentivised to choose electric over petrol or diesel. It proposes a transition period to the new system, exempting existing EV owners as a way to encourage uptake before the implementation date.

Barrett added: “It should be cheaper to drive a zero-emission vehicle than a more polluting vehicle, but it’s only fair that these drivers should pay a share, and a pay-as-you-drive model can achieve this.”

From next year, EV owners will have to pay vehicle excise duty (car tax) in the same way as owners of combustion vehicles, including the five-year ‘luxury car’ supplement applied to any vehicle costing more than £40,000.

Previous governments have floated the idea of road pricing systems but rolled back after public outcry. However, the CBT claims 65% of drivers back a road pricing system for EVs, with just 19% against it.

The RAC is among 37 groups in the Pay-as-you-drive Forum represented by the CBT and it has previously argued that the current duty and taxation system should be replaced with a pay-per-mile approach for all fuel types.

Its head of policy Simon Williams said: “With fuel duty revenue set to fall further as more electric vehicles come on to the road, a replacement form of taxation needs to be introduced to avoid losing billions.

“Our research suggests drivers broadly support the principle of ‘the more you drive, the more tax you should pay’. 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.

“A pay-per-mile system could be set up according to vehicles’ emissions with EV drivers paying the least to further encourage take-up and ‘gas guzzlers’ paying the most. We’re not in favour of charging different amounts per mile based on the type of road driven on.

“We believe the Treasury needs to get moving on creating this new system sooner rather than later.”