Green Alliance calls for transport tax reforms

Transport taxes could be used much more effectively to steer the UK towards lower carbon transport and protect the public finances, says the Green Alliance.

The think-tank believes taxes do not reflect the share of greenhouse gas emissions being generated by road transport, aviation and shipping. At the same time, transport tax revenues are being undermined by the switch to electric vehicles, leaving a £28bn black hole in Treasury finances in the coming decades.

The Green Alliance has worked with WPI Economics to model a series of reforms across the road, aviation and shipping sectors. Reforming transport taxes: a fair share package looked at a range of road, aviation and shipping taxes, and their impacts on emissions, revenues and household budgets.

The report outlines a ‘fair share’ package of tax reform which moves the UK closer to net zero, secures revenues for the Treasury and works progressively across the income distribution. The Green Alliance concluded that a ‘fair share’ package would encompass road pricing, emissions-based vehicle purchase taxes, a kerosene tax and a levy of shipping fuel.

According to the Green Alliance’s modelling, a package of these measures would raise an additional £37bn in 2035 into government coffers, on top of a projected £60bn which would be raised from current transport taxes at 2022 prices. The group said this would give the government the option to either reduce taxes elsewhere or to increase public spending.

Additionally, the package would have a significant impact on the UK’s annual greenhouse gas emissions, potentially cutting them by an average of 10.6 million tonnes of carbon dioxide a year between 2025 and 2035 – equivalent to half of all greenhouse gas emissions each year in weight. “Because VED is not the mechanism with which to drive EV uptake – here, it is regulation that is doing the heavy lifting –the system should be reformed to reduce the numbers of heavy cars on the road.”

Also, VAT on public chargers should be cut to avoid penalising those who cannot charge at home, says the report.

Jonny Marshall, senior economist at the Resolution Foundation, said: “The switch from fossil-fuel-powered cars to EVs is a key part of Britain’s net zero transition, and it’s happening quicker than most people expected. This is good news for the planet and motorists as EVs are cleaner and cheaper to run.

“But unless we modernise road taxation to reflect the cars that are on our streets today and in the future, we risk putting even more pressure on the public finances and our crowded roads.

“We need a new GPS-based ‘Road Duty’ for EVs to offset falling Fuel Duty revenues, and ensure that the net zero transition doesn’t leave poorer drivers in older cars bearing the burden of vehicle taxation.

“VAT rates on those using public chargers should also be reduced to the same level enjoyed by those, generally richer households, lucky enough to charge at home. Our tax system needs to keep pace with the electric vehicle transition, in a way that protects low- and middle-income households.”

Northern Ireland.

Green Alliance policy adviser Johann Beckford and political adviser Alice Watson said: “While taxes on polluting travel, from driving to flying, would go up, our reforms would be more progressive than the current system. It would mean richer households paying proportionally more than poorer households, with the charges phased in between 2025 and 2035 to allow people to adjust.

“As a society, we agree tax should be part of the cost of driving. After all, it causes carbon emissions, air pollution, noise, depletes natural resources, causes congestion and is dangerous to pedestrians and cyclists. Then again, it can facilitate vital cultural, economic and social exchanges that we all value.

“But, when it comes to other polluting transport sectors like aviation and shipping, our tax system is not even close to accounting for the factors (the negative externalities) which determine the costs we should place on them.”