Pay-per-mile road tax ruled out before Autumn Budget

Despite continuing speculation surrounding the possibility of pay-per-mile road tax, the Government has told Auto Express that it “has no plans” to introduce a road pricing scheme, which could have cost drivers as much as £1,500 per year.

Chancellor Rachel Reeves has warned about “difficult decisions” in the upcoming Budget, but it seems the recent controversy regarding winter fuel payments may have dissuaded Labour from introducing perhaps its most polarising scheme yet.

In a statement, the Department for Transport told Auto Express: “We have no plans to introduce road pricing. We are committed to supporting our automotive sector as we transition to electric vehicles in order to meet our legally binding climate targets.”

While it remains unclear how a pay-per-mile scheme could have been implemented, it had been widely reported that drivers faced the prospect of forking out as much as 12-15 pence per mile to drive their car.

With MOT data revealing that the average driver drove around 6,500 miles last year, road pricing at that level would have cost most people around £975 on an annual basis. Those using their car more and travelling around 10,000 miles yearly would pay roughly £1,500 – a huge jump from the £190 flat rate currently in force.

Alternatively, the UK could have adopted the New Zealand approach, which charges drivers roughly the equivalent of £36 per 1,000 miles travelled. For those driving 6,500 miles per year, this would have cost them £234 – more than they pay now, but far from what some publications had been reporting was on the cards.

Of course, these speculative figures only tell half the story, as a road pricing scheme could have gone hand-in-hand with a vast reduction in fuel duty, or even its removal altogether. This would greatly counterbalance the increased cost of road tax and is a concept supported by the likes of the RAC.

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.”

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 benefiting 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 at around 15 pence for petrol and 14 pence for diesel – almost double the long-term average of eight pence.

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.”

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