Could you afford to operate if ‘Pay per Mile’ charges were imposed?

As the government pushes for people and businesses to switch from petrol and diesel vehicles to electric, HM Treasury has left itself with a £40billion blackhole in their finances. 

Chris Hargreaves reports…

Over the past decade the government has frozen fuel tax duty at 57.95p which the Treasury believes has saved the average mileage driver £1,200.

Due to the significant spending by government during the Covid-19 pandemic, it is believed a rise in fuel tax duty of around 2p or 3p is now being considered to generate extra income in the short term.

It is expected the Treasury has lost around £100billion over the last decade as a result of not increasing the fuel tax.

However, a report from Fair Fuel UK and the CEBR has warned any rise in fuel duty charges would generate “little revenue”.

They said short term gains from any increase would be between £250 and £460million, but would tail off as more drivers switched to electric vehicles.

Within 20 years, the amount of extra revenue would only be around £50 to £90million.

FairFuel said a fuel duty rise would only play a “minuscule role” in sorting out the nation’s finances despite the damage an increase could cause to thousands of motorists.

To avoid a total loss of revenues, UK motorists have seen a standardisation of the Vehicle Excise Duty, with vehicles with and an RRP of £40,000 or more having to pay an additional “luxury tax” or £475 per year for the first five years form registration. 

Some may argue everybody who use roads in the UK pay should be liable for road tax, after all, they don’t call it an “air tax”. However, with a total ban on the sales of new petrol and diesel vehicles just over the horizon the UK government has just nine years to create a new taxation to replace the current VED. 

It is believed the Department for Transport is considering car tax changes which could see a new pay per mile system introduced resulting in motorists being forced to pay five times more to use the roads according to the new data which was based on drivers who are travelling 10,000 miles.

Under current costs, FairFuel has predicted drivers would spend £1,402 per year on petrol to fill up their cars. This would come with a total VAT and fuel duty price of 14p per mile which would equate to a total charge of £1,400 per year.

On top of the fuel duty charges owners are charged £150 per year on Vehicle Excise Duty (VED) if their car is over one year old. This would leave a total spend of just over £1,500 on taxes but £1,750 this will increase as overall mileage rises.

For those who travel 12,500 miles would spend £1,750 on taxes with those travelling 15,000 miles set to pay £2,000.

However, based on predictions from Nick Freeman, a pay per mile system will be priced at around 75p, charges will dramatically rise.

At this rate, 10,000 miles will see overall costs rise to £7,500 per year to use the roads. Overall charges will rise to £9,350 for those who travel 12,500 miles and £11,250 for those who drive 15,000 miles per year.

However, those such as chauffeurs whose annual mileage is significantly higher than the average person could face extra costs of £18,750 for travelling 25,000 miles per annum or £37,500 based on 50,000 miles per year.

At a reported 75p per mile, will cost a family petrol car driver an eye-gouging £6,500 more than they annually pay now in Fuel Duty and VAT (this does not include VED changes).” The Treasury is considering a new pay per mile system to help fill a £40billion gap in public finances caused by the switch to electric cars.

Even if the figures suggested are substantially higher that would could be imposed, even at 20p per mile for a chauffeur vehicle covering 75,000 miles per year, 1,442 miles a week would still equate to a staggering £15,000 extra tax per year.

The Government will lose revenue generated by VED and fuel duty which is not paid by electric cars.

When asked about a possible introduction of a pay per mile scheme, the Department for Transport said they will “ensure” motoring taxes keeps pace with changes on the road.

They said any changes to the tax system will be considered by the Chancellor with any further steps announced in due course.

Chris Hargreaves.

TheChauffeur on YouTube

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