Why electric cars are forcing Britain to confront a pay-per-mile future
Peter Roberts still vividly remembers the day he broke the Downing Street website.
In early 2007, the account manager from Telford, Shropshire, had set up one of the country’s first e-petitions after being outraged by Tony Blair’s plan to roll out road charging.
Within a few weeks, the vast number of signatories – nearly 2m – briefly overloaded the government’s computer systems.
“I thought, ‘Well, I don’t like this idea. Let’s find out if other people feel the same way,’” Roberts recalls.
The overwhelming show of opposition sent shockwaves through the New Labour government and forced ministers into a humiliating retreat.
“It was quite fun, but also quite scary,” Roberts says. “I’d never been in the limelight like that before.”
Fast-forward 17 years and he and other motoring campaigners are preparing to man the barricades once more, as the idea regains momentum in Westminster.
With the rise of electric cars eating into fuel duty receipts[1], a coalition of think tanks and green charities say road pricing is the only way that Rachel Reeves can plug a £22bn hole in the public finances.
They are urging the Chancellor to unveil the measure in next month’s Budget in a bid to stop the bleeding and ensure electric vehicle drivers pay their fair share.
It has set the stage for a row over whether to introduce a pay-per-mile system[2] – and which vehicles and roads it should cover – that risks causing controversy again for the Government.
“The new Chancellor faces a looming black hole,” Silviya Barrett, of Campaign for Better Transport, said last week.
“She can avoid it, in a way which is fair, and which garners broad public support. But she should start now, as this issue will only get more pressing.”
Electric shock
Other politicians have tried and failed to impose road pricing on British motorists.
Despite calls since the 1960s for reform, successive governments have ducked the issue or been forced into retreat by popular revolt.
Yet for Reeves, the question can no longer be delayed.
As part of the race to reach net zero carbon emissions, the Government is phasing out petrol cars and encouraging motorists to buy electric vehicles (EVs) instead.
The zero emission vehicle mandate compels manufacturers to sell ever-higher proportions of EVs, while Labour is also preparing to bring forward a ban on new petrol and diesel car sales to 2030[3], five years earlier than a previous deadline set by Rishi Sunak.
It means that by the end of this decade roughly one in five cars on the road will be electric, compared to one in 25 today, according to Auto Trader.
As the numbers grow further, it will eventually help to eliminate some 114 million tonnes of carbon dioxide produced by domestic transport per year – most of which comes from cars.
But it will also nix one of the Treasury’s most dependable sources of tax revenue: fuel duty.
Battery-powered electric cars don’t need petrol. So every motorist that goes green will deprive the Exchequer of ever more revenue.
[embedded content]This is the central dilemma facing Reeves.
The amount raised by fuel duty currently stands at about £25bn per year, equivalent to almost half of Britain’s defence budget.
Depending on whether Reeves decides to break with the legacy of the last government and raise the levy for the first time since 2011, this sum could rise to £28bn by 2028.
But fundamentally, that will not solve the Government’s long-term problem, with pressure now growing across the political spectrum for a major intervention.
Last week, a coalition of organisations led by the Campaign for Better Transport, urged Reeves to grasp the nettle now to “avoid losing billions”.[4]
They include roadside assistance provider the RAC, free market think tank the Adam Smith Institute, the Chartered Institution of Highways & Transportation, Conservative-friendly think tank the Centre for Policy Studies and Greenpeace UK.
According to the RAC Foundation, the Treasury stands to lose £5bn in fuel duty revenues from 2028 to 2033.
In a letter to the Chancellor, the Campaign for Better Transport suggested the “easiest immediate solution” to this was to adopt a pay-per-mile scheme for electric cars.
Supporters say this will patch the holes in the public purse and address wider issues of fairness.
Although they are set to pay vehicle excise duty from April, EV drivers currently pay no equivalent to fuel duty when they are charging.
That is partly because of policy choices designed to spur their adoption. But with two thirds of EV drivers charging at home, it is also because it is technically difficult to separate this consumption from the rest of a household’s power bill.
Adopting a per-mile road tax would address this and be relatively simple to administer, says Barrett, of the Campaign for Better Transport. It would also closely mirror the way fuel duty works now, with motorists who drive more ultimately paying more.
“The key problem is the gap in revenues that’s being created,” says Barratt. “So in our research, we tested the argument that ‘This is an EV issue, so why don’t we just tax EVs?’.
“Many people agreed with that.”
[embedded content]Another argument for introducing a pay-per-mile tax now is to get electric car drivers used to the idea, Barratt says, so ministers won’t have to upset an even larger number of drivers in future as adoption grows.
It’s an approach that also commands support among economists. Many like the idea of road pricing because of its simplicity and the ability it gives policymakers to tackle the scourge of congestion.
“Governments have been kicking the can down the road on this for a long time,” says Philip Booth, a professor of finance at St Mary’s University in London who has long advocated road pricing.
“I think it’s fair to say that nearly every economist in the country would agree that we should move to a more rational system for pricing road use, for both congestion and distance travelled.”
In the longer run, advocates also hope that road pricing for EVs will open the door to a wider scheme encompassing all road vehicles.
“If people are happy with the system [for EVs], it could potentially be extended to petrol and diesel cars as well,” adds Barrett.
“There’s more transparency, because people see the more they drive the more they pay. And it can also be an incentive to think about whether they can make that journey by public transport.”
Prices could also depend on other factors, such as a vehicle’s weight or which specific roads a driver uses.
This could eventually allow the Government to reduce traffic jams by raising prices for the busiest roads and deterring drivers from using them – but that would almost certainly prove more contentious.
Nevertheless, Maxwell Marlow, director of research development at the Adam Smith Institute, believes going for this latter option makes the most sense.
“We do prices for everything else – for food, for financial services, you name it – and if there’s a price, it sends a signal,” he says.
“For roads, we don’t have that. You cannot address the fact that heavier cars create more wear and tear on the roads, or that congestion makes people go slower.
“This would also allow councils or whoever maintains the roads to actually keep up with maintenance costs.”
How to implement it
There are broadly three different kinds of road charging: a flat per-mile tax; schemes that charge depending on road type; and those that take into account both road type and how busy they get.
The first “vanilla” mile-based system has been proposed by the Campaign for Better Transport and is gaining support in policy circles for its relative simplicity.
It would only apply to EV drivers – and strictly to those who bought their car after a certain date – and could be recorded by regular odometer readings.
A similar proposal suggested by the Left-leaning Resolution Foundation think tank last year called for EV drivers to pay 6p per mile, with the addition of VAT taking it to about 7.2p per mile.
The average private car is driven about 6,500 miles per year, according to official data. So under the Resolution Foundation proposal, a typical driver would be liable for £468 per year (or £936 for two-car households).
[embedded content]Odometer readings could either be transmitted digitally by the EV to the authorities or taken as part of a car’s MOT, experts have suggested.
These kinds of simple per-mile systems are also being set up in countries such as Iceland, New Zealand and the US.
In Oregon, Virginia and other American states, where most schemes are currently voluntary, drivers are given the choice of opting out from providing regular readings – but if they do so, they must pay a fixed monthly fee instead that is likely to cost them more.
However, most pay-per-mile advocates tend to regard these types of schemes as the first potential step down a longer path. “At the moment, we’re just talking about charging a set rate. We are not saying the scheme should be smart,” says Barrett.
“But there’s a question about whether you should charge drivers the same regardless of where they are driving, and whether it should vary depending on congestion.”
A more complex scheme could involve the Government varying the rate charged per mile by the type of road used or how busy that road tends to get at peak times.
For example, motorways could be more expensive to use than A or B roads. And in turn, a highly congested motorway such as London’s M25 could be more costly than the relatively quieter M45 in the Midlands.
But this would make the system more complicated to run.
A national computer system would potentially need to collect location data on cars – either directly from the vehicle or via a plug-in “black box” – or capture vehicle licence plates using a vast network of roadside cameras.
[embedded content]A version of road pricing already exists in central London in the form of the £15-per-day congestion charge and the ultra-low emission zone charges introduced under Mayor of London Sadiq Khan.
Meanwhile, the “full-fat” version of pay-per-mile, where Uber-style dynamic pricing changes on a daily basis, is possible but would be even more complex to manage.
Under that model, however, Marlow at the Adam Smith Institute argues that the Government could get the best possible picture of how busy roads are. In one potential scenario, the UK could adopt French-style privatisation of motorways, with companies then using the system to judge where to invest in upgrades or new carriageways.
“If we can work out how much it costs to drive on the road, we can therefore signal about where investment is needed,” Marlow says.
“Let’s say you’re in central London and the cost to drive on a stretch of road is very high. That signals to the Government or to private investors that they’ll get a great return for investing in that road.”
Another alternative is for city-specific congestion charges, like the one already in place in London, to be coupled with a per-mile system, both the Campaign for Better Transport and the Resolution Foundation have argued.
Risking a backlash
While economists may love road pricing, the general public are unsurprisingly more sceptical.
Some 55pc of motorists remain opposed to any form of pay-per-mile taxation, a poll by the Green Insurer found in May, with just 17pc saying they were in favour.
Against that backdrop, Steve Gooding, a former senior Department for Transport official, believes road pricing advocates face major pitfalls.
Gooding, now director of the RAC Foundation, still has the scars from the last time Labour proposed the controversial idea.
In 2007, he and other officials watched as thousands of people per day joined the e-petition in protest over plans they had put forward with then-transport secretary Alistair Darling.
“Our experience was that if you try to protect your income stream and get the policy benefits of road pricing – for example tackling congestion – you have immediately made your scheme more complicated,” says Gooding.
“So if you’re going to introduce a new scheme that will affect millions of people, you want to look for the simplest, most foolproof, most bulletproof way of going about it.”
Fears about the potentially astronomical fees motorists could end up paying under the previously proposed system – not helped by its lack of simplicity – were also what led to it being junked by ministers ahead of the 2010 election.
“One challenge with a system where people pay different amounts of money at different times and in different places is that inherently someone, somewhere is going to be paying more and somebody else is going to be paying less,” Gooding adds.
“And we all know that the person most likely to want to talk to [the media] is the person who ends up paying more.”
Critics also point to concerns about how pay-per-mile systems, particularly those that charge more based on the type of road or time of day, can punish people who may need to drive to work because they cannot afford public transport – or aren’t served well by it.
This could include many people living in rural areas, where bus services have been reduced over the past decade, or key workers such as nurses, social care workers and police officers who may need to work early and late shifts.
Advocates such as Marlow, at the Adam Smith Institute, and Barrett, at the Campaign for Better Transport, argue that these people could simply be granted exemptions, rebates or cheaper rates.
“You do need to be flexible, and I’m in favour of solving that with technology,” says Marlow. “Cars are very smart now and your usage could be linked to your account. If you’re a nurse, for example, you could be allowed to submit expenses which you could claim back.
“There could be a consultation for people such as tradesmen as well who rely on driving around for their jobs. But if you’re someone who lives in Surrey and works at Goldman Sachs, for example, and you are driving to work, why should you be exempt?”
Where to draw the line could prove controversial, however. What would be done about someone who needs to drive to their job at a supermarket, for example?
“It’s certainly possible to give certain people exemptions,” says Gooding at the RAC Foundation. “But as soon as you start on that continuum, you are again adding to complexity and there is always going to be an unhappy person who ends up being last in the queue and misses out.”
Suggestions by campaigners that money from road pricing could be pumped into improving local rail and bus services are also unlikely to wash with those who feel they are set to lose out, adds Gooding.
“If you don’t happen to live somewhere where that better public transport network is, then all you’ve ended up with is cost,” he says.
At the same time, many drivers feel they already pay enough in tax and regard road pricing as a thinly disguised attempt to curtail their personal freedom, says the Alliance of British Drivers, which led the last revolt against road pricing.
“We recognise that from the Treasury’s point of view they are going to have a financial gap,” says Ian Taylor, the group’s spokesman.
“But we regard road pricing as a regressive and unfair measure that will just force us all to pay more.
“It is also being pushed by organisations that frankly do not really like the freedom to drive and would rather discourage us all from doing it.”
[embedded content]But Barrett, at the Campaign for Better Transport, argues that for the UK to reach net zero carbon emissions, the number of cars on the road will have to fall. “A lot of research has shown that to reach net zero you cannot just have a one-for-one replacement to electric cars – you also need a shift towards sustainable transport options.
“Congestion also has big economic costs. And that’s before you even get into thinking about air pollution produced by vehicles.
“At the moment many people are pushed into buying a car because they don’t have viable alternatives, even though using public transport would make more financial sense to them.”
Yet Taylor, at the Alliance of British Drivers, is also concerned about the potential privacy implications of road pricing.
Any national system that does more than simply count the number of miles travelled will inevitably need to keep a record of where drivers have been, he points out, whether that is through Big Brother style cameras or GPS data being fed into a central database.
Research by the Campaign for Better Transport also found that drivers were worried about mission creep, with most saying they would only want any road pricing device in their car to be capable of tracking mileage.
Around half said they would prefer measurements to be taken from GPS data collected by their car or from their odometer.
“I just won’t feel comfortable with anything to do with checking exactly where I’m travelling to, that’s my decision. It takes away a little bit of privacy for me,” one man in a focus group said.
Taylor believes the Government should instead find a technological method of taxing the EV charging – so as to avoid the need to collect so much sensitive data.
“There has to be a way of doing this that does not involve these kinds of intrusions,” he adds.
‘War on drivers’
Sadiq Khan has already come under fire from London motorists angry about his Ulez expansion
Credit: Carl Court/Getty Images
Unlike the last time Labour tried to impose road pricing, there was no mention of any proposal in the party’s most recent election manifesto.
Despite this, however, the Government has been accused of mounting a “war on drivers” with its enthusiastic support of widespread 20mph speed limits[5] and so-called low-traffic neighbourhoods.
And in London, Khan has been accused of quietly working up proposals to introduce road charging despite public insistences that it is “not on the table”.
Earlier this year, a Freedom of Information request revealed that City Hall had spent £3m of taxpayers’ money drawing up plans for such a scheme.
How quickly a pay-per-mile scheme could be rolled out in the UK would ultimately depend on the complexity of the system and the technology required to operate it, says Gooding at the RAC Foundation.
But physical restraints aside, when to press ahead will fall to politicians. The Resolution Foundation has argued that “urgency is required, given the need to avoid a growing number of EV drivers not paying tax”.
It warned particularly of a scenario in which early adopters, who tend to be wealthier, avoid paying towards a pay-per-mile scheme while lower income households instead bear the brunt.
“The Government should be aiming to begin charging road duty on compatible EVs by 2027,” the Resolution Foundation recommended. Adopting the measure that quickly would almost certainly require Reeves to announce any plans imminently.
[embedded content]‘It will cost billions’
Despite recent support for road pricing, there is a reason why no top politicians have floated the idea again.
“It has become a standing joke that even if any UK politician is unable to deny the logic of the case for some form of road pricing, they are never willing to implement it within the next 10 years – by which time they will be long gone,” one report by Stephen Glaister, a transport academic, warned a decade ago.
Yet Reeves does not have the luxury of time afforded to her predecessors.
And with fuel duty receipts about to go up in smoke, she may find her hand is forced very soon.
Still, if Labour’s “Iron Chancellor” pushes ahead with road pricing, an army of angry drivers are likely to rise up to meet her, predicts former campaigner Roberts.
These days, he owns an electric car and a hybrid – meaning he would once again be in the Government’s crosshairs.
“Road pricing is still the same intrusive and very expensive system it was in 2007 – and it’s going to cost billions,” Roberts says.
“I’m not sure I’d start another petition this time but my views haven’t changed, so if someone else starts a campaign, I think I’d lend a hand.”
With the idea on the table again, supporters will be hoping the current Labour administration can succeed where others have failed.
But if history is anything to go by, the journey will be anything but smooth – so Reeves might want to strap on a crash helmet.
References
- ^ eating into fuel duty receipts (www.telegraph.co.uk)
- ^ a pay-per-mile system (www.telegraph.co.uk)
- ^ a ban on new petrol and diesel car sales to 2030 (www.telegraph.co.uk)
- ^ urged Reeves to grasp the nettle now to “avoid losing billions”. (www.telegraph.co.uk)
- ^ with its enthusiastic support of widespread 20mph speed limits (www.telegraph.co.uk)