The U.K. Labour government is considering a controversial pay-per-mile road tax to address a growing shortfall in fuel tax revenue in a scheme described by the opposition Conservative party as a “tax on working people.”
The proposal is part of a wider effort to modernize the country’s transport infrastructure and respond to the rise of electric vehicles, which contribute little to the current fuel duty system.
As electric cars become more prevalent, the traditional fuel tax has been losing its effectiveness as a source of revenue. The government currently collects over £25 billion annually from fuel duties, but as the number of petrol and diesel vehicles on the roads decreases, this revenue is expected to decline sharply. In response, Labour ministers are exploring a mileage-based tax that would apply to all vehicles, regardless of fuel type.
Under the proposed scheme, drivers would be charged based on the number of miles they drive, potentially through GPS tracking technology or odometer readings. This pay-per-mile system would ensure that both electric vehicle (EV) owners and traditional fuel vehicle users contribute to road upkeep and infrastructure. Rates could vary depending on factors such as location, congestion levels, and vehicle emissions, with higher charges in congested urban areas and lower rates for rural driving.
“Our transport network is evolving, and so must our approach to funding it. The rise of electric vehicles is a positive step toward a greener future, but it presents new challenges in terms of fair taxation,” Transport Secretary Louise Haigh said.
“We want to ensure that those who contribute to congestion and pollution pay their fair share, while also supporting investment in greener transport options,” Haigh noted.
The scheme is fraught with pitfalls, however, including the fact that one of the USPs of electric vehicles was their tax exemption due to their lack of carbon emissions. It also has the potential to disproportionately affect those in rural areas where other modes of transport are not available.
A study from the GoCompare comparison website noted that the new pay-per-mile system could see drivers who do the average mileage in the U.K. pay upwards of £990 a year in road tax. The current flat-rate cost to tax a car for the 2024/2025 financial year is £190.
The GoCompare study found that a majority of British drivers were against the proposed new system, with 53 percent rejecting the idea. Those most against the scheme were younger drivers, with 60 percent of drivers aged 18 to 24 against the move.
The primary reasoning for those opposed to the plans was that they believed it was another scheme designed to increase taxation.
Edmund King, president of the AA, acknowledged the need for reform but urged the government to carefully consider the system’s potential impact on everyday drivers. “We understand the fiscal challenges as we transition to electric vehicles, but any new system must be fair and transparent. We have to ensure that rural drivers or those without easy access to public transport are not unfairly penalized,” King said.
The left-wing government appears intent on bolstering the Treasury’s coffers through a variety of controversial measures after recently scrapping the Winter Fuel Allowance for a significant number of British pensioners — a move that has even caused a split in its own party.
Greg Smith, the opposition Conservatives’ transport spokesperson called the latest idea a “tax on working people,” adding: “This is just another example of Labour’s obsession with tax hikes. Hardworking families who need their cars will be the ones to suffer the most.”