Every year, British drivers collectively contribute £33 billion to the Government’s coffers, just through the Vehicle Excise Duty (VED) and Fuel Duties we all pay. (And we pay another £5.5 billion in VAT charged on the Fuel Duty.) However, is there a better way of taxing motoring and funding the nation’s roads? That was the question posed by Lord Wolfson and the think-tank Policy Exchange for this year’s Wolfson Economics Prize.
The winner was Gergely Raccuja, a young Graduate Transport Planner at Amey, who crafted his proposal for a new road tax system with help from the RAC Foundation. In his entry, Raccuja begins by identifying some crucial problems with the current policies.
For one thing, he points out that Fuel Duty revenues are falling due to the ongoing rates freeze, better fuel efficiency and the uptake of electric and hybrid vehicles. He also argues that the current taxes are not transparent enough for motorists to get a handle on their mileage costs. VED does not correspond to vehicle use at all, while few motorists could say how much Fuel Duty they have paid this year – or even on a particular journey. Moreover, there’s the problem that drivers across the country know all too well: the lack of investment in local roads that leaves them in a chronic state of disrepair.
Addressing the Concerns
Raccuja recommends scrapping both Fuel Duty and VED, and replacing them with a new ‘Road Tax’. Each vehicle would be subject to its own per-mile tax rate, which would depend on its weight, fuel type, CO2 emissions and Euro emissions standard. The lighter and cleaner your vehicle is, the less you pay for each mile you travel. For example, a Euro 6 petrol car emitting 110g CO2/km might pay 9.4p per mile, whereas a Euro 4 diesel van emitting 170g CO2/km might pay 40.4p per mile.
So how would this Road Tax be collected? Raccuja suggests that the Government should just get insurance companies to do it, as they already have the required information: the vehicle registration number (which would enable them to determine its weight, fuel type and emissions) and its annual mileage. The tax bill could simply be added to insurance renewals and paid at the same time. These yearly bills would be quite a lot higher than current VED payments, but prices at the pump would be much lower once Fuel Duty is removed from the equation.
According to Raccuja, this radical overhaul would give people more transparency about the taxes they are paying and do a better job of capturing motorists’ impact on our roads and the environment, all while ensuring a steady revenue stream for the Exchequer. He argues that 20% of all Road Tax revenues should go directly into the Roads Fund, to help maintain both the Strategic Roads Network and essential local roads.
Whether or not you entirely agree with Raccuja’s diagnosis of the problem or his proposed solution, his paper is an important contribution to a debate that will only become more prominent in the coming years. Policymakers will have to grapple with the same questions he does as they figure out how to fund our roads adequately without penalising motorists unduly. Let’s see if they can do as good a job answering them as Gergely Raccuja has.