The Institute for Fiscal Studies (IFS) has sounded the alarm on a looming £25 billion annual revenue shortfall from fuel duty by 2040, as electric vehicles increasingly become the norm. This stark warning comes as the government's net-zero ambitions drive a ban on new petrol and diesel car sales by 2035.
The IFS advocates for a two-stage approach to reforming motoring taxation: introducing an 'EV duty' in the short term to recoup lost revenue, followed by a comprehensive road pricing scheme that charges drivers based on distance travelled, location, and vehicle type. This more equitable system would also address traffic management and environmental concerns.
Proponents argue that this overhaul is crucial for maintaining incentives for electric vehicle uptake while securing a stable income for the Treasury. However, opposition parties are likely to scrutinise government plans, calling for clarity on how the revenue gap will be filled without disproportionately affecting households.
The IFS stresses the importance of transparency and predictability in any new tax system, enabling motorists to make informed decisions about vehicle purchases and travel habits. The report also highlights that a well-planned replacement for fuel duty is necessary to avoid future budget deficits or cuts to public spending.
With pressure mounting on the Secretary of State for Transport and the Chancellor of the Exchequer to outline a coherent strategy, motorists can expect increasing scrutiny over how the government intends to balance environmental objectives with fiscal responsibility and fairness to all UK citizens.