What is road pricing, how would it work and should you be worried about it?

Road-pricing, or charging each driver and car per every mile driven, was floated as a possible policy of the current Labour Government just ahead of the 2024 Autumn budget — and it has been around as a proposal in Westminster for much longer than that.

With plans to phase out the sale of new petrol and diesel cars by 2030, the UK exchequer is looking at a potential £35-billion hole in the public finances as electric cars have so far either paid no vehicle excise duty (road tax) or a reduced rate, and of course they will never pay any fuel duties, as EVs don’t use fuel. As it happened, the Autumn Budget didn’t see the introduction of road pricing, but now that it’s been floated as an idea, it’s not going to go away…

How to spend £35-billion

According to the fourth session of the House of Commons Transport Committee Report on Road Pricing, published in 2022, the current £35-billion raised from the combination of VED road tax and duty and tax on diesel and petrol, doesn’t just pay for the upkeep of the nation’s roads. In fact, only one-fifth, £7-billion pounds, gets allocated to roads. The rest of the cash — and the total is worth 1.5 per cent of the UK’s GDP — is spread out to other Government departments, from the NHS to schools to policing and defence.

So any threat to that taxation income — a threat that the Government has to an extent created for itself by enforcing the 2030 ban on new petrol and diesel sales — is a serious problem for the country. It’s not that petrol and diesel won’t be sold anymore after 2030, or that electric cars will pay no tax at all, but as things currently stand, that tax revenue is going to decrease between now and 2030, and decrease rapidly after that point. Hence why something needs to be done, and that something is road pricing.

How would road pricing work?

In one sense, we already have it. London’s Congestion Charge and ULEZ (Ultra Low Emissions Zone) are essentially a form of road pricing, aimed at reducing the number of private vehicles entering the centre of the city (that’s the Congestion Charge bit) and ensuring that across a broader swathe of the city, the cars that are being used conform to the most up-to-date emissions standards (that’s the ULEZ bit).

So the technology is already in place for road pricing in those areas — digital cameras on gantries read numberplates, and those numberplates are checked against DVLA data to establish the ownership of the vehicle and its type. The appropriate charge can then be levied and paid.

Equally, motorways across Europe (and that one stretch of the M6 in England) already have road pricing in the form of tolls, most of which are these days digitally paid, often by driver’s fixing small electronic tags in their windscreens which automatically communicate with the toll booths or gantries, and which pay any due tolls electronically. The driver will have an account with the tolling authority, or a private tolling company, and will simply pay the bill as it comes through.

Basically, it all conforms to the ‘polluter pays’ principle. If you drive further, and do so at peak times, you’ll pay more. That might seem unfair to those who, say, have relatives who live at the other end of the country, or who have to travel at a specific time for work, but it’s been noted that road pricing could act, just like the Congestion Charge, as a way to strong-arm drivers into making decision about their mobility, maybe forcing them to consider more public transport options.

To scale road pricing systems up to the entire road network will be quite some undertaking, so it’s likely that at first, road pricing would be targeted at city centres, ring roads, and major trunk roads such as the M1, M4, M40, M3, and M25. Those roads will already have lots of infrastructure in place to make the fitting of road pricing equipment that much easier. Don’t go expecting road pricing to come to the windy lane that runs behind the local farm just yet.

The other option would be to have a ‘black box’ system installed into cars which automatically records the date, time, duration, and location of each journey and charges accordingly. There would likely be significant resistance to such a system on privacy grounds though, not to mention that it would be an expensive and long-winded way of going about things as retro-fitting all of the UK’s vehicles with such a system would be prohibitive. Nevertheless, that is the option that the Transport Committee suggested is the preferred one, although the Committee did note that there would need to be rigours care taken of the privacy aspect, and that the existing ‘patchwork’ of congestion and low-emissions zones would make it difficult to implement at the national level.

Why not just tax EVs more?

That is actually quite tricky. In theory, an extra charge could be added to public charging sessions, which would be something of a replacement for fuel duty, but there could equally be complaints that the Government is then unfairly targeting high-mileage drivers, many of whom could make the argument that their journeys are of broader economic significance.

It becomes even more complicated when you consider that something like 80-90 per cent of all electric car charging will be done at home. How can the Exchequer make the distinction between electric power that you’ve used for your kettle and that which you’ve used to charge up your Tesla? OK, so most electric car charging will be done overnight, but that’s not an absolute, so it becomes all-but impossible to work out which electricity is going to which use.

Equally, following the shock in energy prices after Russia’s invasion of Ukraine, no government is going to be keen to be seen ladling extra charges onto home energy costs, so that’s likely a non-runner.

It’s also unlikely that an extra cost for public charging would be applied, certainly in the short term, as the Government is trying to encourage somewhat flagging public interest in electric cars, and putting an extra tax on charging isn’t going to help in that respect.

The only potential wiggle room is in VED road tax. From 2025, EVs which have been VED exempt so far will be brought into the regular road tax net, but the Chancellor confirmed in the 2024 Autumn Budget that the cost would only be £10, and that plans are afoot to ensure that more expensive EV models don’t have to pay the extra £410 VED levy for cars that cost more than £40,000.

One possible idea is to tax cars by weight — electric cars are notably heavy, and it’s thought that such a tax might encourage car makers to be more innovative when it comes to reducing weight. France already uses a weight element in its car tax system, but it’s complex and in general the idea is to keep the tax system as simple as possible.

Eventually, electric cars will probably end up paying generally what everyone pays for road tax now, but that’s a ways off, until the Government is satisfied that it has done all it needs to do in terms of incentivising people to switch to electric power.

So, is road pricing definitely going to happen?

It seems so. Remember that £35-billion? Well, the Treasury does, and it’s not going to let that kind of cash simply disappear just because we’re all driving electric cars.

The waters are also already being tested. That Transport Committee on Road Pricing report noted that: “Without radical reform, policies to deliver net zero emissions by 2050 will result in zero revenue for the Government from motoring taxation. A failure to replace existing motoring taxes with an alternative road charging mechanism will lead to either decreased investment in public services, including road maintenance, or increased Government borrowing.”

That can’t be allowed to happen, with the Committee stating that: “The Government must start an honest conversation with the public on the funding implications for road development and maintenance and for other essential public services of decreased revenue from vehicle excise duty and fuel duty.”

Should we panic now? Or panic later?

Probably neither. While the Transport Committee report did indeed find that road pricing and paying-per-mile is almost inevitable, there were also some silver linings for drivers. The biggest of which is that, according to the Report: “The Government must set out a range of options to replace fuel duty and vehicle excise duty. Those options should be revenue neutral and not cause drivers, as a whole, to pay more than they do currently” and that: “Any alternative road pricing mechanism must be revenue neutral to the Government rather than causing drivers, as a whole, to pay more than they do currently.”

It would also mean that fuel duty would, eventually, fall to zero so you you’re a low-mileage driver with a big V8 engine, you could end up being quids-in.

There’s also still a lot to work out. How do you charge visitors from other countries? What about road haulage firms, without whom the nation would pretty much grind to a halt, and who are already under significant cost pressures? Whatever decisions are taken, and however long a roll-out road pricing gets, the countdown clock to 2030 isn’t going to stop ticking.

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