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A new report from the Climate Change Committee (CCC) states that the UK Government needs to introduce measures to help address the hole left in public finances by fuel duty. As the UK switches to electric cars, revenue from fuel duty will be cut dramatically, which could leave the Government with a black hole of around £28billion a year.
In the report, the CCC called for a “sensible and fair approach” to road pricing, to ensure the shortfall is made up.
This would be implemented to avoid further subsiding the costs of driving from general taxation.
Without any tax on driving, the considerable operational savings offered by EVs can be expected to significantly increase congestion as the costs to drivers of each extra mile driven is lower.
To combat the changes in habits, the CCC suggested a variety of potential approaches to road pricing.
One suggestion is a simple charge per mile driven, which could be levied based on annual odometer checks, which could be done when getting an MOT test.
Another more sophisticated scheme includes varying the charge based on the time of day or the location, based on “vehicle tracking technologies”.
Simple approaches such as flat charges per mile or road/geographic tolling are familiar to consumers and easier to understand,
This may make these schemes more straightforward to implement.
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However, the report finds that more dynamic schemes offer more ability to internalise some of the costs of driving.
These tailored prices could also help reduce congestion or disincentivise harmful behaviours.
The CCC conceded that the Government needed to explore policy options as soon as possible in the run-up to the 2030 ban on sales of new petrol and diesel cars.
It added that introducing a new tax system at an “early stage” will help avoid a situation where drivers “begin to assume that EV driving will always be tax free”.
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Currently, petrol and diesel drivers pay fuel duty at 52.95 pence per litre, bringing in £28billion for the Government last year, with both fuel types being subject to 20 percent VAT.
The report also highlighted the ZEV mandate which is set to be introduced from 2024, following a public consultation launched in April 2022.
The Government intends to use the mandate to set legally binding annual targets for sales of zero-emission cars and vans that are at least as ambitious as the trajectories modelled in the Transport Decarbonisation Plan.
According to RAC estimates, there are currently about 462,050 battery electric vehicles on the UK roads.
This has more than doubled since 2020 when there were 207,051 EVs.
Lord Deben, Chairman of the Climate Change Committee, said: “It is to the Government’s credit that the significant successes of the COP were possible only because of British commitments.
“In targets, the UK is indeed a world leader.
“However, this Progress Report reveals that, despite important achievements in renewable energy and electric vehicles, the Government is failing in much of its implementation.
“Sharply rising fuel costs should have given added impetus to improving energy efficiency, yet the necessary programmes are not in place.”
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