Billions to Disappear as Britain Goes Electric and Loses Fuel Taxes
Fuel duties raise 28 billion pounds ($35 billion) -- almost 4% of total government receipts.
(Bloomberg) -- Britain needs a new approach to taxing motorists as the move toward electrical vehicles threatens billions of pounds of government revenue, a think tank warned.
Fuel duties raise 28 billion pounds ($35 billion) -- almost 4% of total government receipts -- and all of that will disappear in coming decades unless urgent action is taken, the Institute for Fiscal Studies said in an analysis published Friday.
The commitment to reaching zero net emissions by 2050 represents “a huge long-run fiscal challenge” for the government, which has already foregone almost 20 billion pounds a year by freezing duties to help people struggling with the cost of living, the IFS said. A further 1 billion will be lost if reports that Boris Johnson is planning to cut duties by 2 pence per liter of fuel prove correct.
New motoring taxes should reflect distance driven and vary according to when and where journeys take place, the IFS said. There is also a case for introducing a flat-rate tax per mile driven, it argued. The longer the government puts off change, the harder it will be as many people are switching to hybrid or electric vehicles in the expectation of paying little tax on them.
“The government should set out its long-term plan for taxing driving, before it finds itself with virtually no revenues from driving and no way to correct for the costs -– most importantly congestion –- that driving imposes on others,” said Rebekah Stroud, an IFS economist who co-authored the report.
Duty on petroleum and diesel has remained frozen at 57.95 pence per liter since 2011, with the government delaying or cancelling plans to increase the levy in line with retail-price inflation in every year. Duty now accounts for 1.3% of GDP compared with a peak of over 2% around the turn of the millennium.
To contact the reporter on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net
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