The British take ownership of electric vehicles
THE CARS on UK roads are changing. According to the World Economic Forum, a global think tank, more than a tenth of new cars sold in 2020 were powered by electricity. This is lower than levels seen in other parts of northern Europe, but four times higher than in America. And the shift from fossil fuels to electricity is expected to accelerate. The government’s plans to decarbonise the economy will require the number of battery-electric vehicles (VEs) on UK roads to drop from around 100,000 currently to 3m by 2025, 10m by 2030 and 25m by 2035.
This rapid change is necessary if Britain is to meet its international obligations to cut carbon emissions. But an analysis by the Tony Blair Institute for Global Change, a think tank, highlights three looming risks: a tax hole, increased inequality and more traffic jams. All three are the result of the way driving is taxed in Britain, largely through a fuel tax. This makes driving a VE much cheaper than the alternatives. The median UK driver currently spends around Â£ 1,100 ($ 1,520) per year in total on excise taxes on fuel and vehicles (VED), a tax levied on most personal vehicles, of which around Â£ 750 is tax. But the typical owner of a battery VE, which is exempt from VED, only spends Â£ 320 per year, of which only Â£ 20 is in tax.
These much lower operating costs encourage drivers to make the switch. But as often happens with âsin taxes,â this one falls victim to its own success. Part of the purpose of sin taxes is to encourage people to become more righteous, but the faster this happens, the faster the income is depleted. By 2030, the annual loss of tax revenue VED and the duty on fuel is expected to be around Â£ 8bn, or 0.3% of GDP. That’s about two-thirds of what was raised by the politically controversial increase in national insurance, a payroll tax, announced on September 7. The cumulative cost to public coffers is expected to exceed Â£ 50 billion by the end of the decade (see chart).
The savings will not be distributed evenly. Since wealthier households tend to have newer cars, they are the ones most likely to own VEs. Without a major overhaul, the coming years will see the burden of car taxes fall more and more on the less well-off Britons.
The last problem predicted by the Institute for Global Change is increasing congestion. Switch to a VE reduces the effective cost of fuel to travel an additional kilometer by around 70%, which means that, as VEs become more frequent, motorists are likely to drive more. The Ministry of Transport estimates that unless vehicle taxes are reformed, the next two decades will see a 30% increase in the number of kilometers traveled by passengers and a 7% to 12% increase in the share spent. in traffic jams.
The treasury has long since closed the fiscal deficit resulting from falling smoking rates by aggressively increasing tobacco taxes. But the fuel tax is much more politically sensitive. The Conservative Party enjoys greater support among car owners and has frozen the rate for the past decade.
The most obvious solution would be to shift the basis on which driving is taxed, away from fuel and towards road use. A road toll system would charge the heaviest users the most. It could also allow variable pricing in congested areas, which would help alleviate congestion. But such proposals are deeply unpopular with voters who own cars. With a general election on the horizon, perhaps as early as 2023, the Conservative government is unlikely to upset its core of voters. Public policies, like UK roads, face traffic jams. â
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This article appeared in the Great Britain section of the print edition under the headline “On the road to traffic jams”