Treasury mulls road-charging plan, as Number 10 preps early phase out date for fossil fuelled cars

The Treasury is reportedly exploring how to tackle the £40bn budget hole that will result from the shift away from the internal combustion engine

The Treasury is working on detailed proposals for a new national road-charging plan, amidst growing fears the shift to electric vehicles (EVs) could result in a £40bn black hole in the national accounts as revenues from fuel duty collapse.

The Times reported this morning that a paper detailing how a national road-charging scheme could work has already been presented to Chancellor Rishi Sunak, as officials explore how to manage the impact on the Treasury’s coffers of the shift away from petrol and diesel cars.

The government is expected to announce this week that it is to pull forward the date for ending the sale of internal combustion engine cars and vans from 2040 to 2030, while the sale of new hybrid cars would end from 2035.

The move is set to provide the centrepiece of Number 10’s much-anticipated 10 point green recovery plan, which is also expected to include fresh support for EV charging infrastructure and a new UK battery gigafactory to boost the EV supply chain.

The moves to support the transition to EVs are also set to be accompanied by sweeping new plans to accelerate the development of clean energy capacity, energy efficiency programmes, carbon capture and storage and hydrogen projects, and nature protection initiatives.

In addition to confirming the plan to pull forward the phase out date for internal combustion engine vehicles, the government today announced it is to provide an additional £40m for its Green Recovery Challenge Fund, which is supporting nature restoration projects across the UK, and is set to create more National Parks and Areas of Natural Beauty. Ten “Landscape Recovery” projects will also be launched across England over the next four years to restore peatlands, woodlands, and create wilder landscapes, helping to restore the equivalent of over 30,000 football pitches of wildlife rich habitat.

The plan is being positioned as part of a “re-set” of the government’s agenda following weeks of in-fighting at Number 10 that culminated in the departure of chief advisor Dominic Cummings and communications director Lee Cain late last week.

However, reports over the weekend suggested the Treasury is concerned at the likely price tag of some of the new initiatives, especially given the spiralling economic impact from the coronavirus crisis.

“The Treasury is fighting back hard against a lot of the green plans and there is a battle going on with No 10,” a source close to the talks told The Observer. “The PM wants to get on with it, with plans for the long term, but he is meeting a lot of resistance. You would expect that from the Treasury but with Covid it is of another order.”

The impact on fuel duty revenues is thought to be of particular concern, given the tax is set to raise £27.5bn this financial year, with a further £5.7bn coming from VAT on fuel and £7.1bn from vehicle excise duty (VED), which is not currently levied on EVs.

As such, Sunak is “very interested” in the potential for road-pricing as a means of both replacing revenues lost from fuel duty and helping to curb congestion.

Advocates of road-charging argue it provides a more sophisticated mechanism for pricing the externalities that result from road transport compared to fuel duty, potentially allowing governments to charge more in areas with high congestion and less in rural areas where people do not have viable alternative means of transport.

However, critics argue that a national scheme would require complex technology that would raise privacy concerns and that shifting fuel duty and VED so that it is levied on EVs and the power used to charge them would provide a simpler means of protecting Treasury revenues.

Either way, the Treasury faces a delicate balancing act as it looks to replace the revenue that will be lost as more motorists and businesses switch to EVs, while avoiding slowing the transition to EVs by diluting the financial advantages they enjoy when it comes to running costs.

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