Pay-per-mile road tax: strong voices for and against possible Autumn Budget announcement

The RAC has called on the Government to scrap fuel duty in favour of a controversial pay-per-mile road tax scheme, claiming drivers “haven’t been benefitting” from the current five pence fuel duty discount.

Head of policy at the RAC, Simon Williams, explained that the organisation “think[s] replacing fuel duty with a pay-per-mile system as soon as possible is the way forward as then the only tax levied on fuel would be VAT. This would give retailers nowhere to hide.”

Such a statement comes after chief of staff under Conservative ex-Chancellor Jeremy Hunt, Adam Smith, told the Telegraph newspaper that HM Treasury frequently requested that the government “start preparatory work on a road pricing scheme”.

Pay-per-mile road tax vs fuel duty

Pay-per-mile road taxation, also known as road pricing, would see drivers having to pay more Vehicle Excise Duty depending on how many miles they drive per year, in conjunction with how polluting (or not) their vehicle is. Simply put, this means that those who drive less, pay less, and those that drive more and thus use the roads more, pay more.

Regardless of whether a pay-per-mile scheme is introduced, the RAC expects the government to discontinue the current five pence cut to fuel duty, with Williams claiming that the discount “is losing the Treasury £2 billion a year.”

“We’d normally be against any increase in duty,” he continued, “but we’ve long been saying drivers haven’t been benefitting from the current discount due to much higher-than-average retailer margins.” Data from the RAC’s Fuel Watch scheme shows that the current average fuel retailer profit margin is sitting around 13 pence for petrol and 15 pence for diesel – over one and a half times the long-term average of eight pence.

With all the profits going to retailers rather than the Government and the rise in popularity of EVs putting the fuel duty cash flow in jeopardy, Adam Smith says that a pay-per-mile tax “will no doubt be back on officials’ agendas”.

While the concept of a pay-per-mile scheme has received long-term support from the AA – Chairman, Edmund King, stated post-COVID-19 lockdown in 2020 that “The time is right [for road pricing] because people are out there and they themselves see the benefits of walking and cycling and running” – the motoring association says that in light of the current cost of living crisis, such a levy would be “difficult to introduce” at this present time.

“If in the future a system is introduced, it must have incentives for those dependent on their cars in rural areas, disabled drivers, and shift workers,” King told Auto Express. “The scheme should be overseen by an independent body and should not aim to raise more revenue than is currently raised from drivers.”

Exclusive pay-per-mile road tax survey

Public opinion, on the other hand, appears to be mixed. Auto Express surveyed 280 people on X and found two fifths of readers think road pricing could be the least-worst option for addressing the government’s forthcoming financial black hole, with 30 per cent favouring an increase in fuel duty and another 30 per cent calling for fuel duty to be scrapped in favour of higher road tax.

“Regressive taxation” 

The Alliance of British Drivers, on the other hand, branded a pay-per-mile scheme as “regressive”. Ex-Chairman and spokesperson, Ian Taylor, admitted to Auto Express that “[We] do recognise that there is going to be a funding gap as vehicles go electric, but we still do not like the principle of road pricing.”

“It’s regressive taxation, plus the means of implementation doesn’t come cheap and will involve tracking people’s movements all the time which comes with its own privacy concerns.”

Auto Express asked HM Treasury whether it plans to introduce a pay-per-mile road tax scheme, but it declined to comment, simply saying that “We are committed to supporting our automotive sector as we transition to electric vehicles in order to meet our legally binding climate targets.”

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