The irony won’t be lost on motorists.
Even as we cope with an era of high fuel prices, and with predictions of significant traffic growth in the future, the Chancellor is confronted with a worrying drop off in fuel duty and VED revenue. The reason? The greening of the vehicle fleet brought about by more frugal petrol and diesel engines and the expected take-up of electric cars.
By 2029 the shortfall in motoring taxation will be about £13 billion (in today’s terms).
Unfortunately motorists should also be worried. Because however much we might like to think we are getting one over the Chancellor it seems implausible that he won’t come after with armed with a plan to maintain his income. Essentially there are three ways he could do so:
1) Push up the rate of fuel duty significantly over and above inflation, perhaps by as much as 50% by 2029.
2) Start taxing battery powered cars, but at the risk of stalling the decarbonisation of road transport as drivers take offence at paying large sums for new technology only to see the anticipated savings from lower running costs shrink.
3) Introduce a whole new system of motoring taxation based on the idea of Pay As You Go (PAYG). That is, impose charges that are distance related but also bear some relation to levels of congestion. This would be an alternative to the current VED and fuel duty levies, not an addition to it.
The Institute for Fiscal Studies has no doubt that this third option is the one to go for. In a report commissioned by the RAC Foundation – Fuel for Thought: the what, why and how of motoring taxation – the IFS says PAYG would more closely associate charges to drivers with the ‘externalities’ they impose on the rest of society: air pollution, accidents, traffic jams, CO2 emissions amongst them.
This is a thorny subject but one which needs to be tackled. To be fair to the Chancellor he has already taken some tentative steps, announcing in Budget 2012 that the VED bandings would be reviewed to ensure drivers continued to make a ‘fair contribution’ to the public finances even as cars become more eco-friendly.
Amongst the 35 million drivers in Great Britain the price of fuel is arguably as common a talking point as that other national obsession, the weather. Given the recent record pump prices and the fact that transport is the single biggest area of household expenditure, this is unsurprising. It would be good if politicians devoted as much time to the subject as voters.