As vehicles achieve greater fuel efficiency and many more of us adopt electric vehicles, the current CO₂-based tax system will become redundant. What should the design of new taxation system fit for a zero-emission future look like? This strand of the BVRLA’s campaign seeks to ignite debate and encourage early action from policymakers.
As set out in its Road to Zero strategy, the Government has an ambition that by 2030 between 50 and 70% of new car sales and up to 40% of new van sales will be ultra-low emission. By 2050, government expectation is for almost every car and van to be zero emission. However, a zero-emission future will have an adverse impact on the Treasury’s coffers as the £40 billion revenue raised from motoring taxes will decline, leaving a significant hole in funding for vital public services.
A new tax system will be needed to replace the existing CO₂-based one, but what should such a system look like? With advances in vehicle technology, some are of the view that a national system of road pricing is the ideal replacement for the current system. However, road pricing was a politically sensitive topic when first mooted in 2001. There is also a danger if not applied carefully road pricing could result in double taxation for motorists if it supplemented rather than replaced existing motoring taxes.
The BVRLA is calling on the government to engage with stakeholders to develop a long term vehicle taxation strategy. This strategy must futureproof the vehicle taxation system for a zero-carbon future. The right incentives must be maintained in this period without unintended consequences and road users need certainty around the taxation trajectory. The strategy should also aim to make the current complex vehicle taxation environment simpler and fairer.
To stimulate a dynamic discussion between drivers, the automotive supply chain and policymakers about creating a tax system fit for the future, in early 2019 the BVRLA produced a pioneering report, Road to Zero: time to shift gear on tax. The report draws on the perspectives of nine organisations representing economists, fleets, motorists, the automotive industry, energy providers and local government.
The report, which was also endorsed by leading MPs, reveals consistent findings and attitudes among its contributors, including:
- “No change” on vehicle tax isn’t an option: the consequences for drivers and the environment are too severe and the opportunities to seize are too great
- New technologies present an opportunity to develop a fairer and more sophisticated tax system that could be based on distance travelled, time of journey, location or air pollution
- Government taxes and incentives need to give fleets and motorists a clearer and more consistent long-term message that investing in plug-in electric vehicles will bring economic benefits
- The Treasury needs to protect future motoring tax receipts as drivers move to electric vehicles and CO2 -based income declines – by up to £2bn per year
- The UK’s increasingly devolved transport policy has given cities and regions greater powers to impose local motoring charges and taxes. Local policymakers need greater national government support in designing and implementing these schemes so that they are both fair and consistent
- The way we are driving is changing – from ownership to shared use – and the tax system needs to keep up
Echoing views articulated in the BVRLA’s report, the respected think tank – Institute for Fiscal Studies – in its Green Budget 2019 called for the introduction of a flexible system of road pricing to target congestion. The IFS believe that a system of road pricing where charges vary by time and location is the best way to incorporate the costs of congestion into the prices paid by drivers. Another option – which could be a steppingstone to road pricing – could be the introduction of a flat-rate tax per kilometre driven, which the IFS says would continue to raise revenue and discourage driving once alternatively fuelled vehicles replace petrol and diesel ones.
- The Government must develop a clear medium to long term plan to modernise vehicle taxation policy as we transition to a zero-emission environment.
- The Government should engage with BVRLA members to ensure long term policies fit with the fleet investment cycles to prevent any adverse impact and seek a national framework to guide the interaction of local charging schemes.
Tax Advisory Working Group
The Tax Advisory Working Group works with the BVRLA policy team to shape the association’s positions on taxation issues. The group looks at both current taxation challenges as well as offering thought leadership on how vehicle taxation should evolve with changing technology.
To get involved contact BVRLA Senior Policy Advisor, Thomas McLennan