Centre for Policy Studies: Britain needs a pay-per-mile motoring tax

A new report, ‘The Future of Driving’ co-authored by Dillon Smith and Tom Clougherty of the Centre for Policy Studies, argues that as the motoring landscape changes, we will need a smarter approach to motoring taxation.

As the proportion of zero emission vehicles on the road increases so the government’s revenue from fuel duty and vehicle excise duty diminishes and, the report believes, this should open the door to fairer taxation system for the UK’s drivers.

In 2021/22, drivers paid £33bn in fuel duty and vehicle excise duty. But the Government spent only £11.8bn on roads in the same period, an ‘outdated and onerous tax system’, according to the report.

The suggestion is that a pay-per-mile tax be introduced for ZEV drivers – at a level that would ensure running an emission free car remains considerably cheaper than driving an ICE vehicle. Drivers would be given an allocation of free miles to use before being liable to be taxed and these allocations would differ according to region – drivers in remote locations would receive a greater allocation than those with easy access to public transport. Some focus groups suggested that drivers could be given additional free mileage allowances based on their economic circumstances. 

EVs are subject to this form of taxation in some areas already. In Utah, EV and hybrid drivers can choose either to pay a flat fee, or pay for the number of miles they drive (at 1 cent per mile), up to the amount of the flat fee.

Dillon Smith, CPS Energy and Environment Researcher and report co-author, said: ‘Driving is a fundamental part of life for millions of people up and down the country. Our recommendations take into account public feeling on a variety of proposals, privacy concerns, and their financial impact, and deliver a solution which can lead to fairer, better, and more efficient taxation while tackling congestion and improving air quality in our big cities.’

Tom Clougherty, CPS Research Director and co-author, said: ‘The Treasury has grown used to motorists being a cash cow, but with electric vehicles on the rise, those days are numbered. We shouldn’t replicate the old, punitive tax system, but it is still important that all drivers pay a fair amount for the roads they use. The ‘pay as you drive’ approach our report recommends would meet that objective and could be phased in gradually over the next decade or so – alongside targeted, local initiatives to manage congestion and reduce air pollution.’