Drivers Face New Pay Per Mile Tax to Fill Budget Black Hole

to motoring taxes are being proposed to bridge a looming fiscal shortfall. The influential Resolution Foundation think tank suggests that drivers in Britain should face a new pay-per-mile system to replace declining fuel duty revenues.

The rise of electric vehicles and more efficient cars is quickly eroding the government’s income from traditional petrol and diesel taxes. According to the Office for Budget Responsibility, fuel duty receipts have already dropped from £28bn to a projected £22.6bn over just five years. With even more drivers expected to make the switch to electric vehicles, this trend is set to accelerate.

Under the Resolution Foundation’s plan, all motorists would pay an annual tax on their vehicles, alongside a per-mile charge ranging from 3p for the lightest cars to 9p for heavier models. These heavier vehicles naturally cause greater wear and tear on the roads, justifying the higher rate. Estimates indicate this overhaul could raise up to £20bn annually by the year 2040, making a substantial contribution to government coffers.

Distance travelled would be tracked through a combination of MOTs, driver self-reporting, and, ideally, telematics. These technological solutions could help ensure accuracy, prevent evasion and even pave the way for localised congestion charging in future. As an extra incentive for green motoring, the think tank has proposed slashing VAT on public electric chargers from 20 per cent to 5 per cent, bringing it in line with the rate for home energy use.

Motoring groups have been quick to voice opposition. The Alliance of British Drivers argues that pay-per-mile charging would increase costs and raise serious privacy concerns, with the implementation of tracking technology being a major flashpoint. They also cite administrative expenses as a barrier to such a system’s success.

With the Resolution Foundation also recommending that fuel duty rises by 3 per cent annually and the reversal of the 5p per litre cut, traditional motorists could see the tax on petrol climb to nearly 70p per litre by decade’s end. This plan comes at a time when petrol prices have already risen over 6 per cent since the pandemic, standing at 134p per litre on average last week.

The Treasury so far remains tight-lipped on the proposals, emphasising that official decisions on tax policy await the Budget’s announcement. However, with up to £30bn needing to be found to shore up public finances, radical new charges for drivers now seem firmly in play.