Road pricing more popular than fuel duty

A new report by the Social Market Foundation, which is endorsed by former transport secretary Lord George Young, has said that charging motorists a levy based on the miles they drive would be fairer and more popular than the current fuel duty regime - and could even help address the cost of living crisis.

The report says a new road-pricing system is urgently needed to make transport policy more fair and fiscally sustainable.

The growth in electric vehicles – which do not incur fuel duty – will eventually leave the Treasury with a £30bn gap in tax revenue, equal to around 2p on the basic rate of income tax, the SMF said.

To avert that shortfall, the report says ministers must have the “courage” to tell voters that a shift to road charging is “inevitable and sensible”.

The SMF report includes polling showing that more people support (38%) than oppose (26%) road pricing as an alternative to fuel duty. The poll was carried out by Opinium, with a sample size of 3,000.

The SMF also conducted focus group research which showed that voters regard fuel duty as more unfair than other taxes.

That view is supported by SMF analysis that shows fuel duty is regressive, falling more heavily on lower-income drivers. Even though such motorists drive fewer miles than richer ones, their fuel duty costs make up a greater share of their disposable income, the SMF calculated.

To fill the growing hole in the public finances and address unfairness in roads policy, the SMF said ministers should introduce a “simple” national road pricing regime with a fixed per mile charge. That scheme could be “revenue neutral” meaning it raises the same sums as fuel duty, but distributes the cost in a fairer way.

The report also makes the case for including a free “mileage allowance” akin to the tax allowance, meaning low-use drivers would not pay any charge and high-mileage drivers would make a contribution proportionate to their use of the roads.

A road-pricing regime with a flat rate for each mile driven and an annual “free” miles allowance for every driver would cut annual costs for almost half of all motorists, the SMF said. (See Notes)

Lord Young of Cookham will refer to the SMF report in the House of Lords on Monday during a debate on the economy in the Queen’s Speech.

Lord Young said: “Successive administrations have looked at the case for road pricing and found it perfectly reasonable and sensible – then done nothing because they believe the public will not accept the change.

“This report challenges that assumption. It shows that, as so often, the public are more sensible and mature than political debate gives them credit for. When voters think about the challenges ahead for transport and tax, they accept that road pricing is a prudent and necessary step to take.

“The public are open to innovation because they know that the world has changed and will continue to change, so policy must change too.The welcome shift towards electric vehicles raises a clear question about the future of fuel duty levied on petrol and diesel. The unpopularity of that duty has grown steadily too. As this report shows, a well-designed system of road-pricing would be fairer and more popular than the status quo.”

Recommendations from the SMF report says that government should work at pace to develop the infrastructure to support a simple national-level road pricing scheme, with a flat per mile rate and a free mileage allowance – and set out a timetable for implementing it. To reduce concerns about telematic devices in vehicles and enable swifter rollout, the infrastructure should include the ability to pay one’s road pricing bill using a mileage reading registered at the time of vehicle MOT, point of sale/scrappage of car and point of exiting the UK for foreign-registered vehicles.

To reduce the burden on lower income motorists during the transition period from ICE vehicles to EVs, the government should abolish fuel duty rates for petrol and diesel once road pricing is in place. ICE vehicle drivers would instead pay a road usage surcharge, set at a rate that is lower (in terms of per mile cost) than fuel duty. Alternatively, a flat-rate national road pricing scheme should be established, but reduce fuel duty rates to reduce the tax burden on ICE vehicle drivers.