Government tax revenues are in danger of taking a severehit, as the number of electric vehicle (EV) registrations continue to increase.As of October, battery electric vehicles (BEVS) equalled their September marketshare with an uptake of 15.2%, while plug-in hybrid electric vehicles (PHEVs)grew their shares to 7.9% according to data from the Society of MotorManufacturers and Traders (SMMT).

As more and more electric vehicles join Britain’s roads, thepotential shortfall due to loss of road tax is becoming ever more apparent.From 2019 to 2020, tax revenues from fuel duty accounted for 2% (£28.4bn) ofthe GDO, while vehicle excise duty receipts were estimated to account for£6.5bn.

New research from the Tony Blair Institute for Global Changesuggests that for the average petrol or diesel car, the cost of petrol ordiesel, fuel duty and VED is about £1,100 a year. For an electric vehicle it is£320, a 71% reduction.

In the long term, the Government’s EV deployment targetscould see the Exchequer losing almost £260bn in revenue by 2040 according tothe Institute. To replace this deficit, basic income tax would have to increaseby approximately 6p in the pound, or 2p by the end of the next Parliament.

According to the Avoiding Gridlock Britain report from the TonyBlair Institute for Global Change, taxing the charging of electric vehicles tocompensate for the loss in revenue could be difficult to implement. It couldalso damage adoption rates, causing regression in the vehicles uptake. Equally,the institute suggests that increasing the VED for purely electric and hybridelectric vehicles is not the answer when it comes to plugging the gap.

While the Treasury could look to recoup their losses byincreasing VAT or income tax, this would contradict the ‘user pays principle’by using the taxes from the general population to fund roads which not everyonewill derive benefit from.

Instead, it has been suggested that the Government couldsupport the expansion of tolls, congestion and air quality charges. Equally, theycould also introduce a ‘road pricing policy’ which would see users paying forthe use of their vehicle, rather than its ownership. According to VensonAutomotive Solutions, an alternative road tax system based on distancetravelled was supported by 53% of motorists who participated in their researchearlier this year.

Implementing this approach would not only help supply theGovernment with income for infrastructure spending, but also help them addressother objectives, including managing congestion, and improving air quality.

While ministers are currently discussing road pricingoptions, Toby Poston, director of corporate affairs at the British VehicleRental and Leasing Association told the committee at a recent session in theHouse of Commons ‘Any new road pricing scheme must be easy to pay and have thesimple objective of providing a revenue-neutral replacement for fuel duty andVED.’

This was echoed by Fleet decision-makers at a recent FleetNews roundtable, who called for a solution that replaced rather than added toexisting taxation. Steve Winter, British Gas head of fleet, said: “It can’t bean administrative burden or an additional tax burden. We just need a formula wecan understand and a long-sighted strategy view.”

Adopting a ‘road pricing policy’ which is based on vehicleusage could also help prevent congestion increasing according to the Tony BlairInstitute report.

The improvement of fuel efficiency and the decision toretain the fuel duty freeze could lead to another 400,000 cars on the road bythe end of Parliament. Similarly, the forecasts for electric vehicle usagecould result in a 30% increase in traffic, and a rise in the proportion ofmiles driven in congested conditions up to 12%.

Action to combat the higher volumes of traffic, and replacethe deficit in Government funds are needed, with Simon Staton, Venson clientmanagement director stating the Chancellor is currently under pressure to outlinea 10-year trajectory to establish a financially viable means to achieving zeroemissions. Staton added “Our survey findings confirm an understanding by thepublic that some sort of EV tax or related user charges will be necessary,which should offer Government assurances that people are mentally preparing tomake the switch,”

When it comes to pulling the whole scheme together andcementing the uptake of electric vehicles, in a way that is sustainable bothenvironmentally and financially, the decision relating to ‘road pricing policy’will be instrumental. As the charging networks and number of available modelsgrow, adding a fair and favourable tax regime thas is easy to implement foremployers as well as individuals will only help to further accelerate theuptake of Evs and help the country on their road to zero emissions.