Chancellor Rachel Reeves has been urged to launch a £10billion tax raid on motorists by charging them a fee for every mile they drive. Sir Tony Blair’s thinktank, the Tony Blair Institute (TBI), has said that the move is both necessary and urgent.
Ms Reeves is currently exploring ways to meet a reported huge £40bn shortfall identified by the Treasury ahead of the Autumn Budget next week.
The TBI said that a punishing tax raid on all road users – both electric cars and petrol and diesel users – would hand the Treasury around £10bn per year by the end of 2025. Laying out the proposal, the TBI said that cars and vans should pay 1p per mile and heavy goods vehicles charged between 2.5p and 4p per mile.
A report from the think tank reads: “Under our proposals, the Government would hold fuel duty at its current level and instead add a rising pay-per-mile charge on almost all road users – both electric and conventionally powered vehicles.”
The report added: “By design, our proposed system works to maintain motoring-tax revenue in real terms despite increasing electrification.
“Compared to plans inherited from the previous government, our reforms would raise almost £3bn of extra revenue per year by the end of this parliament and almost £10bn per year by the end of the next.”
The former prime minister’s think tank said the move is urgent because drivers are moving to electric cars, which would substantially cut the amount of tax the Government can take in.
Petrol and diesel cars currently hand the Government almost £30bn of tax a year from fuel duty, and VAT is charged on that duty.
Analysts said the hiked driving charge is crucial before too many drivers have gone electric and become used to driving with low taxes.
The TBI report said: “If the Government does not act quickly to develop a clear plan on how to address these other social costs of driving, more and more road users will buy electric vehicles on the implicit promise that they will not be taxed.
“Trying to introduce a new tax system later will only become more difficult.”
According to the Resolution Foundation, a typical electric car pays around 7p per mile for running costs – including charging, fuel duty, and VAT.
Meanwhile, the typical fossil fuel car pays around 18p per mile.
As a result, the move towards electric cars could halve government revenue.
Revenues are expected to plunge by 40 percent over the next decade.
Those revenues will almost be eliminated by 2050 if almost every car in the country is electric.
Under the TBI proposal, drivers would pay the road charge at their annual MOT when the mileage can be calculated.
However, there are suggestions that the Government could force drivers in the future to use tracking devices in their cars.
These would let the Government charge a lower cost for driving at off-peak times, with a higher charge for using the roads at busy points in the day. However, critics have complained about government overreach.
A government spokesman has rejected claims of pay-per-mile taxes, saying: “We have no plans to introduce road pricing.
“We are committed to supporting our automotive sector as we transition to electric vehicles in order to meet our legally binding climate targets.”