Toll roads and higher income tax – the future of electric car Britain

More toll roads should be brought in to plug a potential blackhole in the Treasury’s coffers due to electric cars, according to a consultancy advising the Government.

Ministers and a handful of influential think tanks are pushing the Government to make radical changes to how drivers are taxed to offset the estimated £35 billion loss in fuel duty revenue over the next few decades as electric cars take over Britain’s roads.

It comes as the Mayor of London, Sadiq Khan, pushed ahead with his controversial ultra-low-emission zone (Ulez) expansion to cover all 32 of London’s boroughs on Tuesday.

Senior consultants at Arup, a global infrastructure consultancy headquartered in London, have suggested income tax hikes and road taxes could cover the lost fuel duty revenue.

In May, the Department for Transport hired Arup to explore how to address harmful emissions from electric car brakes and tyres that experts say are more harmful than diesel fumes.

Ministers downplayed Arup’s role in infrastructure decision making. But the firm has advised on toll road and congestion charging projects across the world – including work on the Humber Bridge and the M6 toll road.

Arup, ministers, and think tanks have proposed radical plans for Britain’s roads, such as new toll roads for EVs, GPS trackers in every motorist’s car as well as higher taxes to pay for a ban on new petrol and diesel vehicles from 2030.

Both the Government and Labour have so far resisted calls to announce tax increases or road pricing to replace the billions that will be lost in fuel duty revenue over the next few decades – possibly because of the public backlash to Ulez and the ballooning cost of net zero.

But, no one seems willing to be honest with taxpayers about who is going to foot the bill when EVs take over - at least not yet anyway.

Tax hikes

Chancellor Jeremy Hunt has already shown that the Exchequer has no issue with hiking taxes.

Last October he announced that, from April 2025, electric vehicles will pay vehicle excise duty (Ved) – a tax levied on every vehicle using public roads in the UK based on their CO2 emissions – in the same way as petrol and diesel vehicles.

The vehicle duty currently brings in around £7 billion a year to the Treasury.

But the Office for Budget Responsibility, the spending watchdog, forecast the tax will only raise £1.6 billion a year by 2027/28 – far less than Government estimates.

Ministers could be tempted to raise Ved as more EVs hit the road. The Treasury has not ruled it out, saying it will “keep all tax policy under review”.

Mr Hunt and Prime Minister Rishi Sunak are under pressure to cut taxes after a series of hikes have led to the taxpayer facing the highest tax burden in over 70 years.

But according to Patrick Andison, an associate at Arup, a small income tax hike, a likely unpopular move, would make up for the loss of fuel duty.  

He said: “If you are just trying to replace fuel duty…you can raise income tax by a small amount and that will make up most of the shortfall.”

Alistair Hunter, Highways Business Leader at Arup, agreed.

“One option [to make up the shortfall] is to put a few pennies on the income tax rate,” he said.

“The UK faces a bigger problem than other countries with fuel duty, as it makes up a substantial 4pc of the total tax receipts each year.”

A source familiar with Government infrastructure discussions told the Telegraph the Treasury is holding its “cards close to its chest” over new road taxes.

They added that civil servants in the Treasury and Department for Transport are not working on any road pricing plans or tax hikes, as there are other pressing matters – like bringing down inflation.

Last year MPs on the Transport Committee warned the Government it risks losing out on tens of billions of tax revenue if it does not explore new forms of road taxation for electric vehicles, and fast.

The Chair of the Committee, Conservative MP Iain Stewart, used a letter in January to lash out at the Treasury after it took ministers over nine months to reply to the report.

He said: “It is disappointing that Treasury ministers have not followed usual Parliamentary courtesies by not responding fully to the important issues flagged in our report. As petrol and diesel cars reduce in number, so too will the Treasury’s tax revenue. That’s why we asked the Government to set out a range of options to replace fuel duty and vehicle excise duty.”

“Pay per mile” pricing

On Sunday Sadiq Khan had to deny reports he was planning on introducing a “pay-per-mile” toll for electric vehicles.

On a website, called Project 2030, the Mayor’s office calls for experts to join the project and devise a way to build a “sophisticated” new tolling system for London’s roads.

It is not the first time the Mayor has been accused of trying to charge motorists.

In November last year, Mr Khan told the Telegraph he was planning to roll out a “Singapore-style” network of toll roads across London once drivers have switched to electric vehicles.

When asked if he was still keen on his proposed toll network, a spokesman for the Mayor of London said: “The technology required to replace existing road charges with a single scheme is many years away and the Mayor has been clear that there are no proposals on the table for such a scheme.”

In 2020, Rishi Sunak, who was then Chancellor, was reportedly “very interested” in some form of road pricing initiative to make up for the loss of fuel duty revenue.

No.10 did not respond to requests for comment when asked about whether the Prime Minister was still in favour of a scheme, however think tanks have been pushing the Government to reconsider in recent months.

The Resolution Foundation used a policy paper in June to call for a new “road duty” for EVs at around 6p per mile (plus VAT), collected using GPS data and paid via monthly direct debits.

The think tank also proposed for the 20pc VAT rate on electricity from public charging points to be reduced to the 5pc level that applies to electricity used for home charging.

Jonny Marshall, an economist at the Resolution Foundation, said: “The switch from fossil-fuel-powered cars to EVs is a key part of Britain’s net zero transition, and it’s happening quicker than most people expected.

“Our tax system needs to keep pace with the electric vehicle transition, in a way that protects low- and middle-income households.”

The Centre for Policy Studies (CPS), a Conservative-leaning think tank, argued that EVs should be charged a flat rate per mile, but pay less than their petrol and diesel counterparts.

Under their proposal, everyone would receive a set allocation of tax-free miles every year, with the allocation being higher for those living in remote areas with fewer transport alternatives.

The CPS claims its per-mile charging system would completely replace fuel duty and Ved receipts for all vehicles.

When asked about the viability of these schemes, a Treasury spokesman said: “With the EV transition accelerating, it’s right that all drivers start to make a fair tax contribution through changes to Ved.

“The success of this transition in normalising EVs on our roads means that it’s right to begin to bring electric vehicles into the motoring tax system.”

They added the Treasury will continue to provide “generous incentives” for electric cars through the company car tax system, as well as 100pc first year capital allowances for EV cars and vans.

Arup’s Mr Hunter said road pricing schemes would be a “huge ask” for the Government to implement, even with today’s technology.

He said: “If you did road pricing efficiently, you would need to do it at scale and use brand new technology that isn’t used at the moment. The amount of infrastructure you would need to put in [on Britain’s roads] would be huge.”

A spokesman for the Automotive Association said road pricing remains “politically difficult” for any UK Government.

He said: “Road pricing or pay per mile has been discussed by economists since the Smeed report in 1964 but is always deemed to be ‘ten years away’ as it is a hard concept to sell to the public.

“Future governments would probably prefer a national scheme in order to win back Treasury income rather than various regional schemes, like [the ones in] London and Manchester.”

Toll roads

Toll roads could be one way the Government could tax all road users to make up for the fuel duty gap.

Although toll roads are popular in countries like France and Australia, there has been a reluctance to build them in the UK.

Currently, the M6 toll road in the West Midlands is the only major road that users have to pay to use. It costs cars £7.10 on weekdays and £12.90 for heavy goods vehicles.

Other smaller toll roads include the Humber Bridge near Hull to the Tamar Bridge on the South coast – there are a total of 23 located across the country.

Closer to London, the Dartford Bridge is tolled using an automatic number plate recognition charging scheme known as the “Dart Charge”.

The cost of the charge varies depending on the vehicle driven, but motorcycles, mopeds, and quad bikes go free. Cars, motorhomes, and any minibuses with nine or fewer seats cost £2.50, or £2 with an account.

Drivers using the Silvertown Tunnel, which is set to open in 2025 near Greenwich, will also be tolled.

The Mayor of London’s spokesman said no decisions have been made on the cost of the toll.

They said: “The user charge has always been a core part of the Silvertown scheme and was part of public consultations ahead of Transport for London’s development consent order application in 2016.”

Mr Hunter argues that the Government should move towards a better scheme for charging drivers, but any scheme that is brought in should be done so to improve Britain’s roads and ease congestion – not to make up the fuel duty shortfall.

He said: “There is nothing, no scheme, that can replace the whole fuel duty deficit.

“The Treasury needs to come up with a system that works nationally and is efficient tax-wise.

“We could use [road] charging schemes to promote economic growth and ease congestion – I think there is a huge opportunity here. You’ve got to give people an option, so it would be inappropriate to heavily tax people using the roads when there isn’t a viable alternative to travel, like public transport.

“In rural areas of the country where there are limited [public transport] options, charging needs to be charged differently across different parts of the country so it is fair.”

The Resolution Foundation’s Mr Marshall said toll roads just won’t work in Britain.”

He said: “Paying for toll roads works for lots of other places, but not really for the UK.

“There is a congestion issue with toll roads. To cover as many miles as possible they would need to put tolls on the big A roads and the strategic networks. The issue with that is if you charge people to drive on the motorways, they would take other routes and congestion would be an issue on smaller roads and towns.

“Making a road a toll road requires a lot of infrastructure, which isn’t cheap.”

According to reports in March last year, a network of toll roads across the UK was being discussed by ministers as they looked at new ways to tax drivers.

These plans were quietly shelved after Boris Johnson resigned as prime minister. A Treasury spokesman said there are currently no plans for introducing toll roads.