Treasury faces 'pay per mile' road tax backlash

The Treasury is facing a backlash from drivers over a mooted "pay per mile" road tax after industry experts warned the proposal will hit small businesses, hauliers and low-income families outside of London hardest.

Officials were urged not to use a new road pricing system as a “post-Covid cash cow” as the Government mulls plans to replace £40bn in lost tax revenue from fossil fuel cars as Britain switches to electric vehicles.

Experts said any motoring tax hike will be met with widespread opposition from drivers and would be borne by poorer households unable to buy electric cars, as well as families living outside big cities.

A road pricing system that would charge drivers per mile has been presented to Rishi Sunak, with the Chancellor reportedly “very interested” in the revived proposals according to The Times.

Similar plans were considered by the last Labour Government but ditched amid opposition to the proposal that would have cost up to £1.30 a mile, when more than a million people signed a petition opposing it.

Nicholas Lyes, head of roads policy at the RAC, said: “Drivers are firm in their views that any new system must not be used as a way to increase the tax burden on them."

The organisation's survey found three-quarters of drivers were worried that a pay-per-mile system would be used to increase the amount they are charged. However, half agreed that motorists who drive more should pay higher tax.

Mr Sunak will need to fill a hole left in the public finances from booming electric car sales, which are currently exempt from vehicle tax. It is hoped that road pricing could encourage more Britons to make the switch.

The Institute for Fiscal Studies said last year that £40bn of revenue from motorists “will all but disappear" in the next few decades if the Government’s zero net emissions target is met.

Prof Philip Booth of the Institute of Economic Affairs said road pricing should be examined but must not become a “post-Covid cash cow” as officials look to reduce the deficit.

Howard Cox, of motorist campaign group FairFuelUK, said: “If the Government decides on road pricing as the answer, they could face a fierce backlash from the public, small businesses and the haulage industry."

He added the tax would hit low-income drivers and small businesses particularly hard as they are less likely to be able to afford a cleaner-fuelled vehicle.

Mr Cox said this would hurt households outside of large cities because they are more reliant on cars because of poor public transport. Almost half of London households do not own a car while 78pc of those in the wider UK have at least one vehicle.

Chris Ashley, head of environment and regulation policy at the Road Haulage Association, said any new tax system must be revenue neutral as higher costs for hauliers were likely to be passed on to consumers.

He said: “Logistics is a highly efficient industry and so any sort of additional cost that is imposed will get passed on."

Mr Ashley warned that the switch to electric vehicles in the haulage industry is likely to happen on a different timetable than for cars and vans.