Rachel Reeves has been warned of a £8billion black hole in the Treasury’s tax revenues in five years’ time as Brits make the switch to electric cars.
The Government’s climate advisers piled fresh pressure on the Chancellor to consider alternative levies to address lost receipts from fuel duty.
The Climate Change Committee (CCC) found, if fuel duty stayed at the same rate as today, revenues would be about a third lower in 2030 compared to 2023.
Fuel duty has been frozen for 15 years in a row with Ms Reeves joining previous Tory governments in keeping the rate the same at her first Budget in October last year.
But, with Labour pushing for a ban on the sale of all new petrol and diesel cars by 2030, the Chancellor faces a scramble to replace the revenue that fuel duty raises.
Ms Reeves is being urged to consider a ‘pay-per-mile’ scheme, which would see drivers charged for every mile they drive regardless of how they power their cars.
Iceland and New Zealand already have a pay-per-mile taxation policies in place for electric vehicles.
Fuel duty is levied on purchases of petrol, diesel and a variety of other fuels and currently represents around 2 per cent of all tax receipts – or £850 per household.
Rachel Reeves has been warned of a £8billion black hole in the Treasury’s tax revenues in five years’ time as Brits make the switch to electric cars.
The Government’s climate advisers piled fresh pressure on the Chancellor to consider alternative levies to address lost receipts from fuel duty
Iceland and New Zealand already have a pay-per-mile taxation policies in place for electric vehicles
In 2023, the Treasury raised £25billion through fuel duty.
But the CCC report said: ‘If fuel duty remained at the same rate as today, falling demand for fuel for vehicles would result in revenues being about a third lower in 2030 than levels in 2023.
‘Without an increase in the rate of fuel duty, we expect to see fuel duty tax receipts decline rapidly, leading to a gap in revenue for the Exchequer.’
In its Seventh Carbon Budget, which recommends a limit for UK greenhouse gas emissions between 2038 to 2042, the CCC added the Government ‘will need to make plans to address the loss in revenue from fuel duty’.
It pointed to figures showing that environmental taxes represented 5 per cent of total UK tax receipts in 2023.
This consisted mostly of fuel duty (47 per cent), vehicle excise duty (15 per cent), renewable obligations (14 per cent), the UK Emissions Trading Scheme (11 per cent), and air passenger duty (7 per cent).
The CCC suggested the Government could hike fuel duty in future years in order to encourage Brits to switch to zero-emission cars and vans.
‘Environmental taxes such as carbon taxes could be used to incentivise households and businesses to shift towards low-carbon technologies,’ the report added.
‘This could leverage additional revenue in the short term, although if taxes are effective in shifting behaviour, then this revenue would not last.’
Last year’s mayoral election in London saw claims that Labour’s Sir Sadiq Khan is plotting a ‘pay-per-mile’ charging scheme for London drivers.
Sir Sadiq angrily denied he is planning to introduce a ‘pay-per-mile’ scheme as mayor and blasted Conservative ‘lies’ and ‘scaremongering’.
But the Tories compiled a dossier of 17 occasions a possible ‘pay-per-mile’ scheme has been referenced by Mr Khan or senior City Hall figures during his mayoralty.
This included Mr Khan writing in his book Breathe of ‘plans to introduce a new, more comprehensive road-user charging system, to be implemented by the end of the decade at the latest’.
