Billions of pounds of new road taxes are needed to plug the tax shortfall set to be created by the switch to electric cars, a new report has warned.
The study, by the RAC Foundation, estimates that Chancellor Rishi Sunak could lose almost a third – or around £5billion – of the revenue raised by car-related fuel duty by 2028.
The collapse in the sale of new diesel cars in favour of electric models could cause the Treasury’s annual fuel duty income from cars to drop from £16.4 million in 2019 to £11.4 billion in 2028, the analysis found.
This £5billion decline is roughly equivalent to what is spent operating, maintaining and enhancing motorways and major A-roads in England each year.
The findings will add to pressure on ministers to reveal if they plan to introduce ‘road pricing’ for electric drivers, who pay no fuel duty.
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The system would see drivers pay per mile or per minute for the amount of distance or time spent on the roads.
Figures from the Society of Motor Manufacturers and Traders show battery electric vehicles made up 11.6% of the UK’s new car market last year, up from 6.6% in 2020.
Diesel-powered new cars accounted for 14.2% of all registrations in 2021, down from 19.7% during the previous year.
RAC Foundation director Steve Gooding said Mr Sunak faces a ‘dilemma’ as the growth in electric cars is causing him to lose out on fuel duty, which is nearly 58p per litre for petrol and diesel.
He added: ‘Whilst we will all welcome a shift to greener driving, the sooner it happens the more pressing the dilemma for the Chancellor who faces a looming hole in the public finances.
‘Currently, drivers of electric cars benefit from purchase subsidies and cheap running costs as ministers push to get more people to ditch fossil fuels.
‘However, ministers must soon decide how and from where they are going to plug the fiscal hole electrification will inevitably cause.’