Car tax changes: New Treasury report reveals plans to ‘offset lost tax revenues’
Martin Lewis gives money-saving advice on VED car tax
Car tax updates could see a pay per mile system introduced which would charge motorists for the journeys they travel instead of their overall vehicle emissions. The new system could replace the current Vehicle Excise Duty (VED) and fuel duty costs as more drivers make the switch to electric cars.
In the latest Net Zero Review Interim Report, the Treasury said “revenues from taxes” will “decline” during the transition to electric cars.
They claimed the government will “need to consider” plans to “offset lost tax revenues” over time.
The report also confirmed the switch to electric vehicles would “involve costs” in further hints policies will change to fund the project.
The report said: “Revenues from taxes on the consumption of fossil fuels and from emissions-intensive industries will decline during the transition, for example, as petrol cars are replaced by electric vehicles.
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“Over time the government will need to consider how to offset these lost tax revenues – whether through adjustments to other taxes or reductions in government spending – so that the UK can reach net-zero while maintaining the long-term health of the public finances.”
It added: “Co-benefits from decarbonisation, such as improved air quality, can also be economically significant.
“However, reaching net-zero will also involve costs and lead to significant structural change.”
The new plans are being considered after the Treasury identified a £40billion black hole in public spending when more cars make the switch.
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Chancellor Rishi Sunak is thought to be considering a pay per mile road pricing structure but will face opposition from motorists.
There is yet to be any confirmation on what the pricing structure would look like and whether electric models and classic cars would continue to be exempt.
The Treasury points out their report contains initial analysis only rather than policy recommendations.
The Treasury says the review is part of a government-wide effort to address environmental issues including Boris Johnson’s 10 point plan for a “green industrial revolution”.
However, the report has revealed the tax system could still be used to offer drivers “incentives” to make the switch to electric models.
Under current legislation, motorists do not pay any car tax charges while those purchasing a model via a salary sacrifice scheme pay no benefit-in-kind rates on electric cars.
The report said: “As well as pricing the consumption of emissions directly, the tax system, including tariffs on imports, can be used to set additional incentives or disincentives.
“For example, the Company Car Tax is designed to make it more attractive for employers and employees to choose cars with the lowest carbon dioxide emissions.”
The Department for Transport has previously confirmed motoring taxes will need to “keep pace” with change on the roads.
They have revealed any changes to the tax system will be considered by the Chancellor with any further steps announced in due course.
Kemi Badenoch, the Exchequer Secretary to the Treasury said: “We are determined to achieve a cleaner, green future, and cutting our emissions to net-zero by 2050 is crucial to this.
“We are already making good progress and have set out billions of pounds in green investment.
“Including decarbonisation and greener homes, electric vehicle charging infrastructure, walking and cycling infrastructure, flood defences and backing enough offshore wind to power every UK home by 2030.”
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