Autumn budget expected to clarify road pricing plans

Tomorrow, the chancellor could announce plans for a new tax system for motorists, explained in full here

Chancellor Jeremy Hunt is expected to detail in tomorrow’s autumn budget plans to change the way UK motorists are taxed, with a new road pricing system rumoured to be among the proposals.

Meera Vadher, who was special adviser to former transport secretary Grant Shapps, confirmed on Twitter that proposals for road pricing were anticipated to overhaul the existing system of fuel duty and vehicle excise duty.

Any plans will come as a response to the increasing electrification of the UK’s car parc. EVs are charged no road tax and don’t contribute anything in terms of fuel duty. As such, revenues have slipped and are forecast to continue to do so exponentially as their uptake spikes in the coming years. 

Research from the RAC states motorists generally support the plans, with 36% of those it surveyed saying a ‘pay per mile’ would be fairer than the current regime. 

The company’s head of roads policy, Nicholas Lyes, said: “Whatever any new taxation system looks like, the most important thing is that it’s simple, transparent and fair to drivers of both conventional and electric vehicles. It’s also essential that a new system replaces rather than runs alongside the existing taxation regime. 

“Ministers should additionally consider ring-fencing a sizeable proportion of revenues raised from a new scheme for reinvestment into our road and transport network.”

For a full guide to road pricing, including how it will affect you and where the money will go, read on. 

*How much tax is raised from vehicles and how is it spent?*

Road tax and fuel duty generate £35 billion a year in tax revenue, equivalent to 4% of overall tax receipts. The revenue from road tax (£7bn) is allocated to the National Roads Fund for local and strategic road upgrades. Fuel duty (£28bn) is disbursed across the whole of state spending to help fund everything from schools and hospitals to public sector pensions and infrastructure projects.

*What's the problem?*

The government expects that by 2040, when electric vehicles dominate the UK car parc, very little tax will be raised from motoring. However, the government doesn't want to discourage the take-up of EVs so, rather than simply imposing a tax on them to restore the public finances, the Transport Select Committee (TSC) has suggested introducing road pricing as a means of generating revenue.

*What is road pricing?*

It uses telematics technology to charge motorists by distance driven, factoring in vehicle size and type. It also serves another purpose of managing the costs of motoring such as pollution, emissions and congestion. The TSC says that to be seen as fair and acceptable by the public, road pricing 'must be revenue neutral, with most motorists paying the same or less than they do currently.' It adds that it hasn't seen a viable alternative to a road pricing system based on telematics.

*So road pricing is inevitable?*

The TSC says that much of the technology required is already available and that 'introducing road pricing is an opportunity for the UK to be a world leader.' It recommends the Department for Transport and the Treasury appoint a body of experts to identify an alternative road charging mechanism by the end of the year.

However, it also accepts that road pricing 'has acquired the reputation as a policy that is too unpopular [with voters] to implement'. It says the government 'must start an honest conversation with the public' but soon because, it warns, as electric vehicle drivers become accustomed to no-tax motoring, it may become socially and politically difficult for the Exchequer to extract motoring taxes from them in the future.

*What other country has a road pricing scheme?*

In 2009, Singapore was the first to launch electronic road pricing (ERP) aimed at reducing congestion. Sensors mounted on overhead gantries communicate with an In-vehicle unit (IU) affixed to each car's windscreen into which the vehicle keeper inserts a pre-pay card. Cameras record the vehicle's registration number. Charges fluctuate according to the time of day, with peak times being the most expensive. London's congestion charge zone was inspired by the system. A road pricing system on the scale of the UK's would need to be GPS-based.

*What alternatives to road pricing has the TSC considered?*

Recovering lost revenue in general taxation is one idea but the TSC says this would be unfair to non-drivers. Pricing electricity used for charging an EV differently from that used for the home is another but doing so would require costly infrastructure. The TSC says that whatever solution is adopted must not discourage active travel (walking and cycling), which the government is committed to increasing or encourage vehicle use and consequently congestion, which it has pledged to reduce.

*What other challenges does road pricing face?*

Persuading voters that under such a system they won't pay any more tax than they do at present will be as great a challenge as establishing one that works nationally, taking into account existing local charging schemes. Equally challenging will be delivering it on budget and on time and ensuring it pays for itself without requiring subsidy. In this last respect, the current tax-based system is extremely efficient.

There's a question, too, around retro-fitting older vehicles with the means to be tracked and charged, unless these continue to be taxed under the old system. There's also the issue of influencing driver behaviour with demand pricing, which many will resent, as well as data capture and driver privacy. On this point, the TSC says government must ensure that data management is subject to rigorous oversight. However, it also heard from witnesses who argued that 'data protection is not a top-level for concern for the public who are prepared to provide data access in exchange for efficient services and systems.'

*What do motorists think?*

Readers writing in response to a recent Autocar Opinion piece on the topic had mixed views.

One correspondent accepted that road pricing is fairer than raising general taxes and that, if you have nothing to hide, data privacy is not an issue. Another voiced concerns that road pricing will be impossible to make revenue neutral. Someone else suggested that increasing the tax on domestic energy consumption would be sufficient to plug the revenue gap but was challenged by another reader who pointed out that this would be an intolerable burden on poorer people. Another correspondent suggested taxing cars on the mileage declared at each MOT but this raises the spectre of people clocking their cars ahead of the test as well as requiring legislation to establish payment liability.

-The technology is ready now-

As a concept, national road pricing sounds reasonable but someone is going to have make it work. That person could very well be someone such as David Savage, vice president of Geotab, the world's largest fleet telematics provider.

Operating in 130 countries, it has 2.6 million connected cars on its books and processes over 40 billion data points daily. So Geotab is used to working with big numbers but even Savage admits connecting the 40 million cars on UK roads would be a challenge. "One of our solutions uses black box technology and we've got installation down to no more than 20 minutes," he says. "Even so, connecting millions of cars in a short period might require an operation like the covid vaccination programme."

He's joking. In fact, he thinks it possible the government could phase in road pricing as it phases out the current tax-based system. In any case, he says, many modern cars are sufficiently connected for Geotab and others to establish a data link without any modifications.

"Road pricing is not unworkable; the technology exists. What is necessary is that government engages with providers such as ourselves as soon as possible."