The move to using electric cars will cost £9 billion in lost duty by 2030, ministers warn
- Experts said this is due to the Government’s ban on new petrol and diesel cars
The rush to electric cars will blow a £9billion black hole in the public purse by 2030, ministers were warned yesterday.
Experts said fuel duty receipts would fall by around this much because of the Government’s 2030 ban on the sale of new petrol and diesel cars.
Electric cars are also currently exempt from road tax, which is projected to cost the public finances hundreds of millions of pounds more.
Towns and cities across the country could also become gridlocked without new taxes such as pay-per-mile road pricing, ministers were warned.
It will pile pressure on ministers to come clean about whether they will introduce new road taxes to plug the hole and about the true cost of going electric.
The rush to electric cars will blow a £9billion black hole in the public purse by 2030, ministers were warned yesterday (Stock Image)
The warning from experts came at a hearing of the Lords’ environment and climate change committee, which has launched an inquiry into electric vehicles (EVs) and whether the Government’s 2030 ban is realistic.
Jonathan Marshall, senior economist at think-tank the Resolution Foundation, said that the longer the Government delays coming clean about how it plans to fill the £9billion gap, the greater the tax burden on lower-income motorists will become.
He told the committee: ‘We estimate that there will be a black hole in fuel duty of around £9billion per year just by the end of this decade, which is getting on for a third of the total that this tax raises.
‘On top of that, without further changes to the vehicle excise duty (road tax) regime there’ll be loss of revenue from there.
‘There is undoubtedly a huge fiscal issue coming from a lack of vehicle taxation and that’s something that needs to be filled.
‘And without a way of putting that cost onto driving, congestion in the UK will get even worse than it is.’
He added: ‘If you can extricate yourself from fuel duty by buying an electric car, the burden of that tax falls on those who can’t do so, and that’ll be those on lower incomes who’ll be paying more tax [in fuel duty] to get around compared to those who have chosen not to pay that tax [by going electric]… it’s a situation that needs to be faced up to fairly soon.
Electric cars are currently exempt from road tax, which is projected to cost the public finances hundreds of millions of pounds more (Stock Image)
‘Obviously it’s a difficult conversation to be had with many drivers, but the longer it goes the least sustainable it seems to be getting.’
EVs have price tags as much as £10,000 more expensive than petrol or diesel equivalents, making them unaffordable for lower-income drivers.
Fuel duty and road tax receipts combined currently net the Treasury around £34billion to £35billion every year.
The former is charged at 52.95 pence per litre at the pumps, accounting for around £30 of the cost of filling the typical 55-litre tank in a family car.
Road tax, also known as vehicle excise duty (VED), is currently charged at £140 a year for cars first registered post-April 1, 2017.
EVs are exempt because they emit zero carbon emissions, but will start paying VED from April 2025.
Peers were also told that the 2030 cliff-edge could be counter-productive in terms of reducing carbon emissions because drivers may buy fossil fuel cars ahead of the deadline and hold onto them.
Steve Gooding, director of the RAC Foundation, told the committee: ‘The risk that comes with those dates [of 2030], is if say there was a constraint on the availability of new vehicles, if that wasn’t meeting the market demand…we could see people using their older internal consumption engine vehicles for longer.
Electric vehicles have price tags as much as £10,000 more expensive than petrol or diesel equivalents, making them unaffordable for lower-income drivers (Stock Image)
‘If that means more of us driving more internal combustion engine miles then that’s a problem for achieving the climate objective.’
Dr Russell Fowler, senior project manager at the National Grid, said he was ‘confident’ that the nation’s grid could handle the transition despite previous concerns that upgrading the grid is not happening quickly enough to meet the expected surge in demand for electricity.
Prime Minister Rishi Sunak has been under pressure to ditch the 2030 target amid concerns over the cost to motorists and charging infrastructure not being rolled out quickly enough, with the Daily Mail launching a campaign urging him to re-think it.
The Treasury was contacted for comment.
