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Annual fuel duty revenues will plummet if the government’s electric vehicle goals are met. A new report urges action now to mitigate the shortfall.
A new report issued by Tony Blair’s Institute for Global Change has found that the switch to electric vehicles will leave the government with a £30 billion tax shortfall.
The number of electric vehicles on UK roads is expected to rise from around 100,000 currently to 3 million by 2025, 10 million by 2030 and 25 million by 2035 if the government’s targets for EV uptake are met.
The report noted that while that’s positive news in many ways, it could bring a number of significant implications that government ministers must move to mitigate.
Perhaps most significantly, annual fuel duty revenues will plummet, leaving a £30 billion hole in revenue. Tax rises equivalent to up to 2 per cent on income tax by the end of the next Parliament and up to 6 per cent by 2040 would be required to make up for the shortfall.
Breaking down the figures, the report illustrates that the median driver spends around £1,100 a year on fuel and VED, of which around £750 is tax. Electric-vehicle drivers, however, pay only £320 a year, of which around £20 is tax. It notes that the savings are reaped largely by wealthier consumers, as those from higher income brackets are proportionally more likely to be driving new cars.
The think-tank advocates for the institution of a road pricing scheme to plug the gap. Under such a system, drivers would pay a certain percentage based on the amount of time spent on roads or the distance they travel.
The report warns that revenue from fuel duty will erode quickly without government action. Even if the government’s targets are not met, at the current rate of EV uptake, revenue is predicted to recede almost £260 by 2040.
The Institute for Global Change has called for a detailed plan from the government on addressing the issue within the next 12 months.