Chancellor Sunak is considering new road taxes as a way of plugging a big deficit.
The UK government reckons it could do with an extra £40 billion or so of extra taxes. Perhaps surprisingly, this is not because of extra spending during the coronavirus pandemic (although there’s plenty of speculation they’ll increase tax as a result of that too). Instead, it’s because of electric cars.
Drivers of electric cars currently pay less tax than regular car drivers. That's because the government imposes two taxes on fuel (VAT and fuel duty). As more and more people switch to electric cars, less fuel is bought and the amount of tax the government receives goes down. The government could reverse this trend by putting in new taxes that would affect all cars, including electric ones. It already levies an annual vehicle tax on all car owners so Rishi Sunak is thought to be considering taxing the actual activity of driving, via tolls. At the moment, the UK only has one toll road, plus a couple of tunnels and bridges that also charge a fee to drivers who use them.
How Brits will feel about this plan if it's adopted will depend partly on what they think driving-related taxes should be for. There are several options. The first is that they're just a good way to raise money for the government. Lots of Brits drive, so it’s a broad tax base, but car ownership is also correlated to wealth so the taxes are mostly falling on people who are more likely to be able to afford them. The UK government made about £40 billion - that's 5 percent of its total revenue - from vehicle-related taxes last year. That money can then be spent on schools or police officers or other public goods and services.
The second reason to tax driving is that cars create specific costs that the government then has to pay for. This includes the roads cars need to drive along and the medical costs of car accidents. For both this and the above tax rationale, it makes sense that electric car drivers should be taxed at the same rate as other drivers. However, that is not true of a third reasoning behind driving taxes: discouraging an environmentally-unfriendly activity.
Electric cars have a significantly smaller carbon footprint than their non-electric equivalents, which pump out the carbon dioxide that contributes to climate change and also reduce local air quality (which can lead to major health problems). Taxes may either nudge people towards greener options like cycling, or give the government more revenue with which to tackle the environmental damage caused. But for this instance, it follows that only dirtier, non-electric cars should be slapped with (higher) taxes.
Read our explainer on: taxes.
