The way cars are taxed needs to be re-addressed as the popularity of electric cars increases and the amount of revenue generated from fuel duty lessens, according to the Institute for Fiscal Studies.
In fact, the think tank believes that the UK should make the move to a system of road pricing to compensate for the £28bn a year in lost revenue from fuel duty as the government makes its push towards reaching zero net emissions by 2050.
In a newly published report, the IFS said that taxes on driving would still be required even after electric cars replaced combustion-powered models in order to manage congestion.
It added that the government would suffer losing a further £1bn a year if rumours of a 2p per litre cut in fuel duty were true. Though revenue from fuel duty generates £28 billion – 1.3 per cent of the national income – an additional £5.5 billion has been lost since 2010-11 as a result of failing to increase rates in line with CPI inflation.
Rebekah Stroud, co-author of the report and a Research Economist at the IFS, said: “Cuts to fuel duties over the last two decades have contributed towards revenues being £19 billion a year lower than they would have been. Another 2p cut, as reportedly mooted by the Prime Minister, would cost a further £1 billion a year.
“The bigger challenge is that revenues are now set to disappear entirely over coming decades as we transition to electric cars. The government should set out its long-term plan for taxing driving, before it finds itself with virtually no revenues from driving and no way to correct for the costs – most importantly congestion – that driving imposes on others.”