By Paul Homewood
h/t Ian Magness
We have known this was coming, but the problems are no longer theoretical ones in the distant future
The chairman of the influential Transport Select Committee has admitted that his own proposals to charge drivers per mile on the road threaten to slow the switch to electric vehicles.
Huw Merriman is promoting radical plans to move to road pricing to help replace the £35bn drivers pay in vehicle excise and fuel every year.
However, he conceded it would be a “disincentive” to go green before a ban on new petrol and diesel engines in 2030. Hybrids are scheduled to be outlawed in 2035.
Mr Merriman, the Conservative MP for Bexhill and Battle, said: “All road users will need to pay to use the road because otherwise we won’t receive any funds from it, and that will mean electric vehicles.
“But the Department for Transport’s key target is to increase the uptake of electric vehicles, so our report is providing a disincentive to that.”
But speaking at an event organised by the Policy Exchange think tank he insisted that the need to repair the hole in the public finances outweighed the need to promote sales of electric vehicles. In a report this month the Transport Committee urged ministers to act.
Mr Merriman also claimed road pricing would be fair and would encourage people to walk and cycle more, and tackle obesity.
He said: “We can not only ensure that we fund the roads that all motorists need, but also that we reduce congestion, target obesity to get people on active travel more, and I firmly believe that using price as the lever, and choice, is better than just hammering the motorist and telling them what to do.”
For electric car-owners, “I firmly believe motorists are ahead of the game and know ultimately they have to pay when their wheels hit the ground.”…………
In the push for net zero, his Government is forcing the pace of EV adoption, banning new internal combustion engine sales from 2030 and requiring new homes to come with charging points.
One challenge the PM did not mention to the CBI, however, was taxes: the Government is set to lose out on billions of pounds as the encouraged ownership of EVs rises.
Cars are a vital source of funds for the Treasury, with vehicle excise duty and fuel duty together raising around £35bn annually: 4pc of Government revenues.
EVs, however, do not contribute any tax, meaning revenues will dwindle as more people choose green cars.
More than 190,000 battery vehicles were sold last year, up 76pc compared to 2020, to make up 11.6pc of total sales, according to the Society of Motor Manufacturers and Traders (SMMT). In 2019, just under 38,000 were sold.
If 60pc of cars are battery powered by 2030-21 – at the rate of adoption experienced in Norway – it will leave an £8bn hole in fuel duty revenues, according to the Resolution Foundation. By 2035-36, that will rise to £14bn.
Faced with this gap, the Transport Select Committee has come up with a road pricing system.
Rather than paying a flat annual charge of road tax, as well as fuel duty, drivers would be charged by road usage.
Tracked by a "black box" telematics device, a payment scheme could charge depending on the type of road – less for quiet rural areas, and more for busy city centres – the time of day and how polluting the vehicle is.
It would mark a radical departure from current congestion charges, such as in London, which uses cameras to levy a daily fee to cross into the district.
The plans, however, may come as a shock to electric car owners who were tempted by tax exemptions to buy the pricey vehicles, says Meera Vadher, former special adviser to the Transport Secretary.
With road pricing, she says, “it will become even more expensive to drive an EV, and politically that is very dangerous for a Government that has really pinned itself on net zero”.
Economists have long adored the idea of raising revenue while charging drivers by the amount they use the roads, and reducing congestion through a higher price for busy roads at peak times. Even back in the early 1960s, the Smeed Report backed congestion charging.
Professor Philip Booth at the Institute of Economic Affairs says the case is “overwhelming”.
“We use the roads, there is a capital cost, there is a current cost and the cost of congestion we impose on others, and there is a way of reflecting those in prices,” he says.
“That would help ration scarce road space, it would help encourage people to use the roads at times when they are less congested.”
In 2019, 356bn miles were driven in the UK. Replacing the £35bn of road and fuel tax implies an average price of around 10p per mile.
1802 Electric Shock_Vehicle Tax and Fuel Duty
Professor Booth suspects more than half of roads would incur no or low charges, as they are almost never congested. Cities, towns and major roads, however, would cost more, particularly at rush hour.
Politically speaking, he suspects this would favour country-dwelling Conservatives over urban Labour voters.
When it comes to precise costs, the Institute for Fiscal Studies calculated in 2019 that the majority of miles driven creates very little cost to others, and so should cost below 5.6p.
However a small share of journeys, typically at peak times, impose much larger costs, with clogged, polluting traffic jams. In the worst cases, that implies a cost of around £4.40 per mile on the busiest routes.
Perceptions of fairness may also play a role in precise fees, as would the precision of tracking and changes in drivers’ behaviour.
Ben Miners at telematics group IMS is involved in trialling similar schemes in the US. Under a pilot in Oregon which began in 2015, around 700 drivers have opted in to pay per mile driven instead of incurring the state’s fuel tax.
“It is growing in popularity primarily because of the increased cost of fuel, but also because of the need for individuals to pay their fair share. A user-pay model resonates well with that audience,” he says.
“The model has proven itself, the money is flowing into the state department of transportation, and the next step is looking at how we scale it up.”
Canada-based Geotab, another telematics firm, has devices in around 2.6m vehicles globally, often for rental and insurance companies to charge on a per-mile basis.
Vice president David Savage calls road pricing a “tailored approach” to paying, adding that telematics devices can generate reams of extra data, for instance by identifying and reporting potholes.
But he cautions retrofitting all cars with devices will not be easy for cost of devices and training of installers.
“As the largest telematics player in the world, we have 2.6m vehicles connected,” he says.
“The transport proposal would arguably call for 32.5m to be connected. That poses some interesting challenges.” Aviva has estimated installing the boxes costs around £100 per vehicle.
Though economists love road pricing, the Treasury needs it and the tech industry can provide it, there is still a key problem: voters.
In 2006-7, more than 1.8m signed a petition against the Labour Government’s road pricing proposals. More recent AA surveys find drivers would often accept a “pay as you go” system to replace current taxes – but do not trust the Government to implement it fairly.
Objections include concerns that freedom to drive a personal vehicle on public roads is under threat; tracking devices are invasive; and drivers may end up being charged more to do less.
Howard Cox at campaign group Fair Fuel argues the idea is good in principle, but “I can’t see it being done fairly”.
“If I drive 15,000 miles per year now, I know the sort of fuel duty I will pay,” he says. “Will I pay the same under the new system? I don’t think anyone in Government is capable of working that out.”
He suggests cyclists should be charged to pay for new lanes, while public transport should get a boost as an alternative. In London the congestion charge is matched with regular buses and trains.
Brian Gregory at the Alliance of British Drivers fears “a huge bureaucratic hierarchy on top of what we are already paying, and the intrusive civil liberties aspect of tracking people everywhere they go.”
There are a number of issues here that will soon begin to have real impact, rather than being theoretical ones for the distant future:
1) The pace of the transition in taxation
Already the Treasury is losing revenue because of the subsidising of EVS. If sales of these continue to grow as planned, the gap in funding cannot be ignored for much longer.
2) EV Rollout
As the article points out, these subsidies, both for the purchase and running costs, are the main attraction for buying an EV.
Take these away, and I suspect sales of EVs will remain at a paltry level right up to the ban on petrol/diesel cars.
This will clearly impact the government’s decarbonisation targets. But more importantly the car industry will suffer financially if, having spent billions on switching production lines to EVs, they cannot sell any prior to the ban.
3) Black Boxes
It seems inevitable that some form of black box technology will be used. But how quickly can this be introduced, and how will existing cars be retrofitted?
Who will pay for this retrofitting, for instance? And how will this be enforced?
4) Mileage Rates
As the article points out, there is a range of pricing options. Flat rate, varying rates for road types, or time of use etc.
And as Brian Gregory comments, there will inevitably be the huge cost of bureaucracy added to bills, so it is unrealistic to expect to pay the same on average as we do now via fuel duty.
But even more concerning is the suggestion that you could pay £4.40 a mile if you dare to travel during rush hour on busy roads. Most drivers have little choice in the matter if they need to drive to work.
5) Regressive Tax
Although there is some public support in theory for the concept of “paying for use of the roads”, when it comes down to the nitty gritty, drivers seem to vote against it.
Of course, in principle, we already do pay more tax, the more miles we drive, via fuel duty. But there is one very big difference – drivers with smaller, fuel efficient cars pay less pro rata than those driving gas guzzlers.
A switch to a universal rate would mean that the former paid more tax. Add this to the fact that many of those being penalised for driving to work in rush hour will also be low paid. Whether economists think this is fair or not is irrelevant – it will be extremely unpopular amongst less well off voters, who are likely to be worse off as a result.
6) Exercise, it’s good for you!
I have to say I get very concerned when I read:
Mr Merriman also claimed road pricing would be fair and would encourage people to walk and cycle more, and tackle obesity.
He said: “We can not only ensure that we fund the roads that all motorists need, but also that we reduce congestion, target obesity to get people on active travel more, and I firmly believe that using price as the lever, and choice, is better than just hammering the motorist and telling them what to do.”
To force people to change their lifestyles through penal taxation is not acceptable. Clearly Merriman is not talking about a few pence here and there. To have the impact he wants, he would need to make some journeys virtually unaffordable. As an example, how many of us have walked, cycled or taken the bus lately because petrol prices have risen by 30p a litre in the last year?
This would naturally impact mainly on the less well-off, who could least afford it. He might just as well have said, “Get off the roads, you poor people. I want to be able to use them without you congesting them”.
There is also the ultimate irony here. If the government is successful in reducing car use, as they have already officially acknowledged, how will they replace the lost revenue? By putting up road charges even more?
As with so much about Net Zero, we are only just beginning to learn about the very real obstacles on the road.
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February 18, 2022 at 11:57AM
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