One of the ideas being floated for the budget is the imposition of a pay-per-mile tax for driving on UK roads. The immediate motive for this is the growing realisation that revenues to HM Treasury from fuel tax will shrink rapidly as electric cars replace the internal combustion engine.
However current proposals, including those from the Resolution Foundation, suggest that the charge, of perhaps 3p per mile, should apply only to electric vehicles and not to internal combustion engine (ICE) vehicles. I cannot think of anything that would be better calculated to destroy Labour's credentials as a party committed to environmental protection and public health. The international reputation of the UK on climate matters would similarly be demolished, if it were to sabotage what has hitherto been one of the more promising and successful planks in its raft of low carbon policies (after decarbonisation of the power sector).
It's worth starting with a simple observation on the current level of fuel duty, frozen since 2011. There is a general principle of sensible taxation for products or activities that cause widespread damage to society. Where the damage is general and a realistic measures and estimates can be made, so-called Pigovian taxes, sometimes described as “sin” taxes, should at least equal the estimated cost to society of the damage done. Otherwise, consumers are not covering the costs of the damage they inflict. If they were obliged to do so, they would tend to consume less of the product, and we would be collectively better off; in this case they would be more likely to switch to low carbon alternatives, hydrogen or electric vehicles.
Surprisingly, for ICE fuels, we do have a number that we can use. Treasury Guidance, which supposedly provides a basis for UK public policy and project appraisal, sets a cost/value to be placed on CO2 emissions/savings. It was set at £265 per tonne of CO2e for 2022. The implication of this is that fuel duty should be set at somewhere around 60p per litre or higher, simply to compensate for the emissions for which it is responsible. For ICE fuels, the current level of fuel duty is 52.95p per litre; in other words ICE vehicles are not paying the true societal costs of the fuel they use.
Incidentally this analysis excludes the health costs of urban pollution from ICE vehicles. This is a similar order of magnitude, and is already recognised in London with ULEZ. There are plenty of studies that do cost the health effects, and the numbers are large. So the growing use of electric vehicles is overwhelmingly in the public interest, whether from a national or a global perspective.
There are a few rather specious excuses for the proposal to levy pay-per-mile charges on EVs. The main one is that they tend to be heavier, like for like, and may therefore incur higher road maintenance costs. Apart from the fact that the UK sensibly and rarely hypothecates taxes in this way (duties on wines and spirits are not used to subsidise pubs or off-licences), there are two responses that demolish this argument. One is that the relative impact of EVs, compared to large commercial vehicles, or to other factors like weather, that impact on roads is firly insignificant. The other is that if this really were a serious issue we should already be imposing differential weight-based charges on ICE vehicles as well
Purely from a climate or public finance perspective, there should not necessarily be any objections in principle to the introduction of pay-per-mile. Road use charging is potentially just one more method of revenue raising, with the advantage that it is to some degree related to an infrastructure cost, with the disadvantage of being quite hard to implement effectively. Like any tax it will also be examined for its wider impacts. But if introduced these taxes should apply to all vehicles, in order to retain the incentive for cleaner vehicles, whether hydrogen or EVs.
But if we do introduce charges per mile, we should go all the way to a proper system of road pricing, charging only for the most heavily used and congested routes. This would alleviate city congestion, save time and money, and, while we still have mostly ICE vehicles, would also reduce pollution and improve health outcomes.
Perhaps most importantly, imposing a tax specifically targeted at EVs, after a long period when governments have been actively encouraging their purchase, would destroy the credibility of future incentives that governments may wish to use in pursuit of their policies. Such a loss of trust in the consistency and stability of future economic incentives would not be confined to the energy sector or to zero carbon issues.
