UK needs to revamp motoring tax system to reflect shift to electric vehicles, MPs say

Government could face £35bn black hole in finances ‘unless it acts now’, Tory MP warns

Pure electric cars are exempt from road tax (Getty)

The UK needs a new motoring tax for electric cars to avoid “zero revenue” by 2040, MPs have said.

The Transport select committee called for a change in the current taxation system to reflect a move towards greener vehicles.

Pure electric cars are exempt from road tax and their motorists do not have to pay fuel duty either – both of which bring in around £35bn a year, according to the report.

The parliamentary committee said: “Policies to deliver net zero emissions by 2050 are likely to result in zero revenue for the government from motoring taxation by 2040.”

“In addition to generating taxation to fund essential public services, motoring taxation plays a key role in managing congestion by regulating demand to use public roads.”

The MPs added: “If the government fail radically to reform motoring taxation, the UK faces an under-resourced and congested future.”

The report urged the Treasury and the Department for Transport to have a “honest conversation” about how to maintain investment in roads and public services as the UK moves towards vehicles that do not pay towards these two motoring levies.

It said the departments should work together to set up an arm’s length body to come up with recommendations for a new road-charging mechanism by the end of the year.

The sale of new petrol and diesel cars and vans will be banned in the UK from 2030 in a move designed to kick-start the electric vehicle market.

A survey last year found participants believed electric cars will already outnumber diesel ones on UK roads by this time.

Huw Merriman, the Tory chair of the Transport Committee, said zero-emission vehicles were part of “ambitious” government plans to get the UK to net zero emissions by 2050.

“However, the resulting loss of two major sources of motor taxation will leave a £35bn black hole in finances unless the government acts now – that’s 4 per cent of the entire tax take,” he said.

“Only £7bn of this goes back to the roads; schools and hospitals could be impacted if motorists don’t continue to pay.”

Steve Gooding from the RAC Foundation said the “silver-lining of zero-carbon motoring comes wrapped in a cloud of trouble for the chancellor”.

The director of the transport policy and research group said: “Drivers choosing to go electric deserve to know what is coming next – particularly if the promise of cheap per-mile running costs is set to be undermined by a future tax change.

A government spokesperson said: “The government has committed to ensuring that motoring tax revenues keep pace with the changes brought about by the switch to electric vehicles, whilst keeping the transition affordable for consumers.

“We will respond to the committee’s recommendations in full in due course.”