RAC and IFS Propose Radical Tax Overhaul

Wednesday, May 16, 2012 Print Email

A radical overhaul of the way UK motorists are taxed is being proposed by the RAC.

Undertaken by the Institute for Fiscal Studies, the RAC- commissioned report says future governments face a relentless decline in the tax income from fuel duty and VED, despite a predicted rise in traffic.

By 2029, the Fuel for Thought, the what, why and how of motoring taxation report states that the size of the chancellor's black hole from motoring will hit £13bn, a scenario primarily driven by ever-increasing fuel efficiency of petrol and diesel cars, and the expected huge take-up of fully electric cars.

And with £13bn roughly equivalent to a 3½p increase in the basic rate of income tax, a VAT hike to almost 23%, or a 50% uplift in rates of fuel duties, it’s clear that none are palatable, the report authors sate. It adds that there is ‘little sense in ever higher fuel duty rates for the shrinking base of motorists relying on conventional fuel’.

The report says; ‘As drivers endure record prices at the pumps they might be surprised to learn that future governments face a “drought” in motoring tax income.

‘The irony is that while ministers encourage us to buy greener, leaner cars, they are being forced to look at ways of clawing back the money motorists think they will be saving. This isn’t scaremongering. The Treasury has already announced a review of VED bands to ensure drivers make a “fair contribution” to the public finances even as cars become more fuel efficient.’

The report recommends a move to a widespread system of road pricing as revenues raised could be used to reduce other motoring taxes.

It says such a move would reduce congestion, tax levied on the most miles driven, leave many - particularly rural - motorists better off, and provide a stable long-term footing for motoring taxes without necessarily increasing net additional revenue from drivers.

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