The rise of electric cars will force Rishi Sunak to overhaul the tax regime to replace tens of billions of pounds of lost income from petrol and diesel duties, the Government’s climate change guru has predicted.
The head of the Climate Change Committee (CCC) said the Chancellor will make sweeping changes to transport levies to raise revenue from battery-powered vehicles. He made the comments as the Treasury mulls a road pricing, or “pay per mile”, system.
Chris Stark, chief executive of the climate adviser, said: “Fuel duties are not where the action is any longer. I don’t expect the Government to raise fuel duty because the bigger challenge is now how road transport is taxed in a world where vehicles have no emissions.”
Economists have warned the switch to electric vehicles will create a £40bn black hole that the Chancellor will need to fill with £28bn generated from fuel duty alone. Motoring taxes account for 5pc of total government revenue, creating a huge problem for Mr Sunak as he attempts to restore the public finances following the pandemic.
“We need to see something that looks like a strategic change there with the transport taxes and so far we have heard nothing from the Chancellor,” Mr Stark, speaking in the run-up to next month’s Budget, said.
“The one thing I think we can be confident that the Treasury will reform is fuel duties and the Chancellor has 28 billion reasons to worry about the Prime Minister’s commitment to phase out the sales of petrol and diesel cars and vans by 2030.”
The Institute for Fiscal Studies has warned that revenue raised from motoring taxes will be all but wiped out in the coming decades as electric cars become dominant. Hybrid and electric vehicles have accounted for 42pc of sales this year, according to the Society of Motor Manufacturers and Traders.
A Treasury spokesman said that it will “need to ensure that revenue motoring taxes keeps pace with this change, so that we can continue to fund the first-class public services and infrastructure that people and families across the UK expect”.
Economists have argued that road pricing, a pay-per-mile tax, could replace the current system, allowing the Exchequer to more heavily tax drivers of electric vehicles. Labour prime minister Gordon Brown scrapped plans for road pricing in 2007 but the idea is said to have been revived in the Treasury.
The CCC advises the Government on reducing emissions and how to adapt to the challenges posed by the net zero transition.
Mr Stark also called on the Chancellor to use the upcoming Budget to overhaul a “mess” of taxes sending contradictory price signals to households.
“We certainly don’t have a strategic approach to carbon pricing and that is something that I hope the Chancellor is thinking about,” said Mr Stark.
“We have [business secretary] Kwasi Kwarteng thinking about a strategy for net zero for the country and we need those fiscal reforms to go alongside that.”
However, he said consumers and businesses needed to be protected from the impact of any changes to spur the climate drive.