IFS calls for duties on road usage by electric cars to cover lost fuel tax

A top think-tank called on Friday for electric cars to be subjected to taxes on road usage to compensate for the £28.0bn loss in revenue that will ensue from the switch from fossil fuels to clean energy vehicles.

The Institute for Fiscal Studies said the government’s pledge that the UK would reach zero net emissions by 2050 meant the tax take from petrol and diesel would shrink to nothing.

Researchers said decisions by both Labour and Conservative governments not to raise fuel duty in line with inflation meant duties had fallen from 2.2% to 1.3% for total revenue of £28bn a year. That had cost the country £19bn annually in lost revenues since 2000.

The IFS said taxes on driving would still be needed because of the costs associated with congested roads.

It proposed road pricing under which the charges for driving would vary according to the time of day and the location.

Rebekah Stroud, an IFS economist and co-author of the report said: “Cuts to fuel duties over the last two decades have contributed towards revenues’ being £19bn a year lower than they would have been.

“The bigger challenge is that revenues are now set to disappear entirely over coming decades as we transition to electric cars. The government should set out its long-term plan for taxing driving, before it finds itself with virtually no revenues from driving and no way to correct for the costs – most importantly congestion – that driving imposes on others.”

Fuel duties raise £28bn, accounting for almost 4% of total government receipts and the longer the government puts off change, the harder it will be as many people are switching to hybrid or electric vehicles in order to lower the tax burden.