Radical tax reform is not essential to support the UK’s transition to electric vehicles (EVs), according to a new report by the non-governmental organisation New AutoMotive.
The report, titled Vehicle Taxation: The Next 25 Years, provides a comprehensive strategy for EV taxation ahead of the Autumn budget and outlines key recommendations for future tax policy.
One of the central proposals is to avoid implementing pay-per-mile road pricing, which, as seen in Iceland and New Zealand, led to a sharp decline in EV sales.
The report suggests that such a policy could stall the UK’s strong EV adoption rates. Additionally, it argues that road pricing to offset the societal and environmental costs of driving is unnecessary, as air pollution and greenhouse gas emissions will naturally decrease with the EV transition. The report also downplays concerns about road wear and congestion caused by vehicles.
The report advocates for reforming road tax by taxing vehicles based on their efficiency rather than a flat rate. This would ensure that owners of less efficient, older vehicles bear a higher tax burden. Under the current policy, drivers of cleaner cars pay up to 10 times more than those with older, more polluting petrol and diesel vehicles.
Additionally, the report suggests modest fuel duty increases to ensure that drivers of petrol and diesel vehicles continue to contribute to the costs of their emissions. A gradual 2-pence increase every three years would be sufficient and freezing fuel duty to date has not significantly impacted the UK’s decarbonisation efforts.
Ben Nelmes, CEO of New AutoMotive, said: “Electric cars aren’t a sin to be taxed but a boon for the economy. Our recommendations suggest a way forward for the Chancellor that is simple and avoids the negative outcomes seen in countries that have implemented pay-per-mile charging. EVs can be a win-win for motorists and the taxman, benefitting both people and the planet.”
Incentives that have driven early adoption, such as exemption from Vehicle Excise Duty (VED) and the Expensive Car Supplement, are to be removed from April 1 and Nelmes cautions against these “electric car tax penalties” which could further hinder wider access to affordable used EVs.