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Having grown up in the era of Michael J Fox and Back to the Future, I was convinced that by 2022 we’d be driving in the skies, and I’d be the proud owner of a hoverboard (not the ones that still touch the ground like we have today).

Sadly, the closest we’ve got to this is the electric car, and as both an early adopter of EVs and a tax adviser, my mind has routinely turned to wondering how the Exchequer will replace the vast revenues it receives from fuel duty, Vehicle Excise Duty (VED), Benefits in Kind (BIKs) on company cars and fuel cards, congestion charges and so on? The recent fuel price hikes and the Government’s determination to wean us off fossil fuels adds further ‘fuel’ to this debate.

Taxes on motoring raise around £40 billion a year for the Exchequer (around 5% of Government revenue), equivalent to about £750 per adult in the UK.  Most of this comes from fuel duties, which in 2019–20 raised £28 billion plus an additional £5.7 billion from the VAT payable on the duties. Another £6.5 billion comes from VED and £0.2 billion from the London congestion charge. *

Whilst our dependency on car travel has changed to some degree over the last 20 years, helped in part by the Government’s continued encouragement to use our over-stretched public transport network, this in itself won’t fill the looming £40bn black hole.

So, I ask myself – what does the future of driver taxation look like?

In short, I struggle to see beyond a ‘pay as you go’ model where, using software, GPS and other modern technologies, we’re taxed for the miles we drive.

In London for example, the congestion charge is based on automatic number plate recognition (ANPR). This eliminates the inconvenience of toll booths and the use of cash or cards, taking much of the administrative burden away from the motorist.

With regard to toll roads, I struggle to see them becoming a nationwide reality as if we had a nationwide system which operates in a similar way to the London congestion charge, then we wouldn’t need tolls or the physical infrastructure which supports them.

Whilst BIK rates look to remain low on the provision of low-emission and fully electric cars, this won’t last, and I think we’ll see a return to BIKs being based solely on the retail price of the car.

In conclusion, my view is that the future of paying for the transport infrastructure of the UK will see the gradual reduction of fuel duty and, probably, vehicle excise duty. In its place must come, firstly, an easy-to-use system of charging based directly on road usage, and, secondly, an expansion and improvement of public transport options with as much flexibility as possible.

Either that or Elon Musk gets his act together and brings that flying car I’ve always wanted to market – I suspect the Government would find a way to tax that too!

*Taken from the Institute for Fiscal Studies ‘A road map for motoring taxation’, 4 October 2019

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