Road tolls: why road pricing will affect you

With electric cars costing the Treasury billions in lost fuel tax revenue, a road charging scheme is looking increasingly likely...

Toll boot plaza on a UK motorway

Some drivers using London's Blackwall Tunnel may soon have to pay a daily charge to use it from 2025, in a move which could lead to wider road pricing measures.

Under the plans, drivers of older, more polluting cars would face the extra charge on top of the existing Ultra Low Emission Zone (ULEZ) and congestion charging schemes. While the cost of using the tunnel has not been confirmed, it's likely to cost the same £2.50 as the existing Dartford Crossing. That means some drivers may face a total cost of £30 per day to drive in the capital at peak times. Electric car drivers are unlikely to be subject to the charge.

The Blackwall Tunnel was first opened in 1897 to help improve access to London's East End. A second bore, or tunnel entrance, was added in 1967 to compensate for the increasing number of cars using the tunnel. According to Transport for London data, an average of 91,153 cars used the tunnel each day in 2021, the latest year for which figures are available.

Transport for London says it will start charging a fee to use the tunnel based on the type of vehicle after the Silvertown Tunnel – a new 0.8-mile tunnel connecting Royal Victoria in London's East End to North Greenwich – opens in 2025. Funds raised from the toll are expected to be used for maintenance, and for managing traffic levels.

Drivers who do not pay the new charge are likely to face significant fines. The announcement comes just weeks before the ULEZ zone expands to cover all London boroughs, encompassing most areas within the M25 motorway.

What is road charging?

Charging drivers to use specific routes is one element of road charging, a scheme which has long been mooted and which could help to raise funds for the Treasury.

Indeed, a hole of some £40 billion, equivalent to 5% of total tax revenues, is expected over the next few decades. This deficit is being accelerated by the move to electric cars, which won't be required to pay road tax until at least 2025, and aren't subject to fuel duty.

This threat to the public purse was flagged up in the Government’s Net Zero Review: Interim Report, published in December 2020. It said: “Over time, the Government will need to consider how to offset lost tax revenues – whether through adjustments to other taxes or reductions in government spending – so that the UK can reach net zero while maintaining the long-term health of the public finances.”

Road charging works by using telematics data from your car to charge drivers according to where they've driven, how long for, and how many miles they've covered.

What will cause the road tax shortfall?

The shortfall due to be filled by proposed road charging schemes has been caused in part by fuel duty, which has been frozen for the past 11 years, and recently cut by 5p per litre to help with the rising cost of living. Fuel duty accounts for roughly half the amount we pay for petrol and diesel at the pumps, and fuel sales generate around £28bn a year for the Treasury. 

Mini petrol station

However, as one of 195 countries to sign the 2015 Paris Agreement on combating climate change, the Government has a target of achieving net zero greenhouse gas emissions by 2050, and the banning of sales of new petrol and diesel cars from 2030 is part of that ambition. 

The other, smaller chunk of cash that could be lost comes from vehicle excise duty (VED), also known as road tax. It raises around £6.5bn for the Treasury, and a large proportion of this money comes from first-year VED rates for more polluting vehicles.

First-year VED rates are based on CO2 emissions; they range from zero for pure EVs with no tailpipe emissions to £2605 for those with CO2 emissions of 255g/km or more. It’s likely that VED rates for greener vehicles, which are currently very low, will rise over time to fill the void. However, even when rates for greener vehicles rise, they might not be enough to cover the shortfall – indeed, it is estimated that abolishing the road tax exemption for electric cars from 2025 would raise less than £1.6 billion by 2027/28.

What's happening in other countries?

In Norway, where large tax incentives have encouraged the take-up of electric cars such as Tesla Model 3, efforts to fill the tax shortfall are already in place. A new motor insurance tax has replaced road tax in the Scandinavian country, costing electric car owners 50 pence a day instead of their previous rate of zero. 

Singapore introduced its own road charging scheme in 2009, using sensors mounted on overhead gantries which communicated with a small computer inside each car. Drivers inserted a pre-paid card into a unit in their car to pay the charges, which fluctuated depending on the time of day. The London congestion charge zone is said to have been inspired by the system.

Tesla Model 3 2023 tracking

While raising the cost of road tax in the UK could alleviate the strain on the coffers of going electric to some extent, it will be a lot trickier to replace the fuel duty that will be lost as sales of EVs overtake fossil fuel-powered cars.

“Fuel duty has one major benefit in that it’s unavoidable, because it’s levied on every litre of petrol and diesel sold, with the added benefit of requiring no interaction with drivers whatsoever,” said RAC head of policy Nicholas Lyes. 

“Any replacement for it must have the flexibility to charge drivers of the most polluting vehicles an appropriate amount while – for the moment – still being able to incentivise drivers to switch to zero-emissions vehicles. Crucially, it must be able to tax every vehicle fairly, including zero-emissions ones, for their use of the roads.”

So far in 2023, purely electric cars have represented 16% of total car sales, having sold 23,010 units up until the end of July. In the same period in 2022, sales of electric cars represented 10.9% of the market.

Pay per mile road charging

Lyes believes the most logical solution is to base any road usage charges on the number of miles vehicles are driven. AA president Edmund King agrees. In fact, in 2017 he helped to draw up a strategy for road pricing called Road Miles, which is based on giving all drivers 3000 free miles every year and then charging around 1p for every subsequent mile. 

The 3000-mile limit is enough to provide free transport for elderly and disabled drivers, who average fewer miles than this per year. While those living in urban areas tend to drive less than 3000 miles a year, rural dwellers average more miles, so they would get 4000 free miles. 

King claims that if fuel duty was reduced by 20% in the first year and a fee of 1p per mile introduced, on average all motorists would be paying 4% less a year than they are at present. Additional funds for the Government would be raised by the introduction of higher cost per mile prices for vehicles being used in cities at peak times, along with a Road Miles lottery and road sponsorship opportunities for businesses.

Changing attitudes to road pricing

The AA and the RAC aren't alone in thinking that now could be the right time to introduce road pricing. When he was Chancellor, Prime Minister Rishi Sunak was also said to be keen on the idea. However, putting tolls on roads and other similar forms of taxing drivers have proved almost universally unpopular in the past. 

In 2007, the Government proposed a fee of 1.5p to 2p per mile for motorists depending on the time of day they were driving, but it was shelved after an online petition against it received 1.8 million signatures.

More road tolls considered by PM

The coronavirus pandemic appears to have changed opinions, though. People enjoyed being able to walk around the relatively empty streets of big cities and towns during lockdown, and this made many of them far more aware of issues with traffic and air pollution. Subsequent findings linking pollution to more severe Covid-19 symptoms could also make more people keen on schemes that tackle the problem.

This shift is confirmed by research carried out by Ipsos MORI. It conducted a poll in 2007 asking people if they would support “the introduction of schemes involving charging motorists a fee for driving in and around towns and city centres if they are designed to reduce traffic congestion and improve the local environment – for example, by reducing emissions – or to raise revenue to invest in transport”. More than three-quarters (77%) ‘opposed’ or ‘slightly opposed’ the idea. When the same question was asked in 2020, 62% supported it. In a second survey, 64% approved of the idea of using the money raised to improve public transport. 

hyde park corner

While it is possible in theory that money raised from road pricing could be used to improve public transport and the roads, it would mean a shift away from the way fuel duty is currently spent. Although the money raised by VED has been used to fund the Major Roads Network since 2020, fuel duty has never been ring-fenced for any particular use. 

Ipsos MORI research director Ben Marshall says: “Road pricing may be inevitable, but if it is to avoid becoming a ‘poll tax on wheels’, it needs to make sense to the public emotionally as well as rationally. That means solving more than a Treasury problem; it means delivering tangible social benefits as well as fiscal ones.” 

What are the next steps?

Despite the move to start charging some motorists to use the Blackwall Tunnel, the Government has confirmed that it has no immediate plans to implement road charging on a wider scale. Following a consultation on the subject, a framework for road charging as expected as part of the autumn budget in 2022, but never appeared. Subsequently, Chancellor Jeremy Hunt has since confirmed to MPs as part of the Transport Select Committee that the Government "does not currently have plans to consider road pricing."

Our advice would be to consider choosing an electric car if one suits you, and to enjoy the tax benefits that such cars enjoy while you still can.

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