The UK government is facing pressure to introduce new car taxes to compensate for the significant drop in fuel duty revenue as the country transitions to electric vehicles (EVs).
A recent report by the Climate Change Committee (CCC) highlights the severity of the issue. Fuel duty currently accounts for nearly half (47%) of all environmental tax income generated in the UK. The report warns that the government is facing a significant funding gap as more drivers switch to electric vehicles.
If fuel duty rates remain unchanged, revenue is projected to be about a third lower by 2030 compared to the £25 billion generated in 2023. This decline threatens to create a substantial hole in the Treasury’s finances. The transition is gaining momentum, with EVs expected to make up 80% of cars and 74% of vans on British roads by 2040, a considerable increase from 2.8% and 1.4% respectively in 2023.
This shift is being driven by falling battery costs, with electric cars projected to reach price parity with petrol and diesel vehicles between 2026 and 2028. After this point, EVs are estimated to become both cheaper to purchase and run, making them the clear choice for consumers.
The CCC suggests that alternative environmental taxes could help fill the revenue gap left by declining fuel duty. Carbon taxes are mentioned as one option to incentivize households and businesses to adopt low-carbon technologies. However, the Committee noted that if such taxes successfully shift behavior, the revenue would not be sustainable in the long term.
Mike Hawes, Chief Executive of the Society of Motor Manufacturers and Traders, emphasized the need for bold incentives to encourage demand, more affordable electricity, and significant investment in infrastructure.
Take-up of zero-emission vehicles to the expected levels can only be stimulated if there are bold incentives to encourage demand, more affordable electricity, significant additional investment in infrastructure, and clear and consistent messaging that buying an electric vehicle is the right thing to do.
He also stressed the importance of supporting the industry, jobs, and economic growth within the UK. The CCC also recommends making electricity cheaper by removing levies and policy costs from bills to encourage more drivers to not only switch but also charge their vehicles at home.
Expanding public charging infrastructure is also crucial, with the network needing to grow from 54,000 public charge points in 2023 to around 300,000 by 2030. Ken McMeikan, CEO of Moto, and Vicky Edmonds, CEO of Electric Vehicle Association England support this, highlighting that the government needs to address the affordability and accessibility of EVs and infrastructure to ensure no drivers are left behind.
The report also debunks misconceptions about EVs, as a barrier to adoption, revealing that many drivers still doubt the environmental benefits of EVs, despite them being four times more efficient than a typical petrol vehicle. Data from the Electric Vehicle Association England shows that nine in ten EV drivers would not return to petrol or diesel.
