Brits Face Pay-Per-Mile Driving Charges in Eco-Drive: Electric Cars to Create £8 Billion Tax Black Hole

• Rachel Reeves has been warned of an £8 billion black hole in the Treasury’s tax revenues as Brits make the switch to electric cars.

• The Government’s climate advisers piled fresh pressure on the Chancellor to consider alternative levies to address lost receipts from fuel duty.

• Iceland and New Zealand already have a pay-per-mile taxation policies in place for electric vehicles.

A new report suggests that the UK Treasury could face a significant loss of revenue as the shift to electric vehicles accelerates.

The Climate Change Committee (CCC), an independent body advising the government on emissions reduction, has alerted Chancellor Rachel Reeves to a potential £8 billion black hole in tax revenues within the next five years. The warning comes as the UK’s transition to electric vehicles threatens to erode income from fuel duty.

Fuel duty, which has remained frozen for 15 consecutive years, is a significant source of government revenue. However, with the anticipated ban on the sale of new petrol and diesel cars by 2030, the government is under pressure to find alternative revenue streams.

The CCC’s report highlights that if fuel duty rates remain unchanged, revenues in 2030 will be approximately one-third lower than in 2023. This has prompted calls for the government to consider a ‘pay-per-mile’ scheme, where drivers are charged for every mile driven, regardless of the vehicle’s power source.

A ‘pay-per-mile’ scheme could see drivers charged for every mile they drive regardless of how they power their cars.

Iceland and New Zealand already have such policies in place for electric vehicles.

The CCC also recommended that holidaymakers should expect more expensive flights to hit emissions targets. The committee’s advice is aligned with the UK’s Net Zero ambition, which aims to reduce greenhouse gas emissions by 100% from 1990 levels by 2050.

The report indicates that environmental taxes, including fuel and vehicle excise duty, comprised 5% of total UK tax receipts in 2023. It added the government “will need to make plans to address the loss in revenue from fuel duty.”

The government is set to announce the level of emissions cuts it will commit to for the period from 2038 to 2042 by the end of June next year. Energy Secretary Ed Miliband said the government would “consider it and respond in due course”.