Per Mile Road Tax Model – What is it?

Electric cars command a premium over equivalent combustion-engined models, but that hasn’t put people off – and it’s causing the Government a headache. A Pay Per Mile model could be the solution.

At the moment, 52.95pence of every litre of petrol and diesel goes to the Government in fuel duty – as well as 20% VAT.

But there’s no equivalent system for electric vehicles – the Government gets nothing from you charging up your EV besides 5% VAT on your home electricity bill, or 20% VAT if charging publicly. And ongoing campaigns are reducing the latter by 5%.

Plug-in hybrids compound the problem by greatly extending the amount of time between visits to the forecourts.

The Government’s Problem

As more people ditch the combustion engine, fuel duty is declining. It previously contributed around 8% of annual tax revenue, but that percentage has almost halved in recent years.

If the Government doesn’t act, it’ll face a £9 billion-a-year black hole by 2030, eventually growing to over £25 billion annually once the final combustion-engined car is off the road.

According to Government infrastructure tsar Sir John Armitt, the solution is to charge people by the mile.

His point? We pay for infrastructure services, such as gas and electricity, as we use them – and, of course, our vehicle’s fuel. Why should it be different for road tax?

What is the Benefits of Pay Per Mile?

The biggest benefit of a pay-per-mile scheme is that charging could be simplified, merging vehicle excise duty, fuel duty, toll road fees, congestion charges, and low-emission zones into one payment.

The easiest way is to charge people based on the mileage recorded at its MOT, generating an annual bill. However, enabling motorists to ‘pay-as-you-go’ – per day, week or month – might be preferable, as the cost is spread across the year rather than one lump sum.

Today, someone travelling 300 miles a year pays the same as someone travelling 30,000. Yet the most obvious change with a pay-per-mile system is that people driving the least pay the least, while those driving the most pay the most.

But critics argue this still isn’t fair.

Issues with the Pay Per Mile Model

Someone living rurally might need to travel 30 miles in their electric car to do their weekly shopping – and they might do so when the roads are quiet. Why should they pay more than someone travelling three miles in a big, polluting SUV at rush hour to do the same?

The solution is tiered charging, which takes different metrics into account. So, the amount you pay could depend on your vehicle’s emissions, where it’s driven, the time of day, and even whether the person driving it relies on their vehicle.

However, this could result in all vehicles needing GPS trackers, similar to those provided by ‘black box’ and ‘pay-as-you-drive’ insurance companies, and would inevitably add considerable costs to the scheme.

Ensuring trackers are tamper-proof is another challenge – and the more variables and metrics factored in, the more difficult such a system is to administer and police.

ANPR technology could offer a solution where sensors detect number plates, but this could trigger increases in cloning, obscuring and hiding plates, or using false ones.

Of course, installing these would be significantly expensive. Plus, it would likely mean journeys on more minor roads would be out of their scope, given that there are around 800,000 streets in the UK, totalling nearly 250,000 miles.

Privacy campaigners have already criticised GPS and ANPR solutions, branding them as an effective way to monitor people’s movements.

And there could be some unintended consequences, too.

Exceptions for Discounts – Who gets them?

Business-to-consumer (B2C) companies could find their costs surging.

Amazon, for example, provides its own courier service nowadays – and its vans are often on the road all day, every day, seven days a week. A pay-per-mile system would hit couriers hard, potentially increasing parcel delivery prices.

Taxi drivers, too, including those from firms like Uber, may find their expenditure rises, resulting in higher fares. And, given we’re in the age of Uber Eats, this could impact the price of a takeaway meal.

Many delivery drivers are self-employed contractors – they could be directly affected and, in some cases, priced off the road.

But if discounts are made for delivery drivers, who else should be entitled to them? Sales reps travelling to meetings? Labourers travelling 20 miles to a building site to work? Ice cream vans are reliant on getting about – will they be entitled to discounts, too?

Where is the line then drawn between ‘necessary’ and ‘unnecessary’ journeys?

How will it Change our Habits?

Conversely, while a company like Amazon could be hit, it could also benefit from psychology influencing our habits.

At the moment, we don’t really consider the price of a journey when we go out. But if we’re shown the likely cost on a smartphone app before setting off, we could be tempted to spend money online rather than at the local shopping centre.

It could make us more reluctant to go out to avoid unnecessarily spending money on driving, further compromising the viability of High Street shops.

Examples of Pay Per Mile Around the World

There are examples of pay-per-mile systems elsewhere in the world.

New Zealand operates the Road User Charge, which is based on the vehicle’s weight and distance travelled, allowing for electronic tracking, and it’s costed on the basis of a fixed price for every 1,000km (621 miles) driven.

The state of Oregon in the USA runs a voluntary scheme called OReGO, a pay-per-mile programme for passenger vehicles. The initiative provides a variety of GPS and non-GPS devices to calculate fees in return for a reduction in fuel duty.

Likewise, several EU countries have already introduced pay-per-mile systems. However, its Eurovignette scheme is generally limited to lorries and applies only to major trunk roads, with Germany operating its own similar system.

What would it mean for the UK?

A pay-per-mile scheme in the UK could increase demand for buses, trains and bicycles, easing congestion, with obvious environmental benefits.

However, another possible psychological side effect could counteract this.

If a pay-per-mile system replaces fuel duty, fuel prices at UK forecourts could plummet to levels not seen in 20 years, increasing the desirability of petrol and diesel vehicles.

The Government hasn’t formally announced any plans to switch from the current system. In fact, the Treasury has said there are “no plans to introduce road pricing.”

The topic was not mentioned in Rachel Reeves’ first budget as Chancellor on 30th October, as she announced changes designed to fill what she claims is a £22 billion black hole left by the previous administration.

However, the Government will need to act sooner rather than later if it’s to avoid a similarly large hole appearing in its finances.