Tax impact of electric vehicle uptake revealed in OBR report

A pile of British money in notes.

Efforts to tackle climate change by transitioning away from fossil fuels are “rapidly eroding” the £39 billion the Government currently receives in tax revenues from petrol and diesel vehicles, according to the Office for Budget Responsibility (OBR).

The Treasury is expected to collect £24.3bn in fuel duty this tax year (2023/24), but the increased take-up of electric vehicles (EVs) is expected to cost £13bn a year in lost fuel duty by 2030, it says.

Several tax bases are at risk of being eroded by behavioural or technological changes. This is particularly true for emissions-linked taxes as the UK transitions to net zero.

The OBR, in its latest Fiscal risks and sustainability report, says that an acceleration in the uptake is increasing the pace at which fuel duty revenues are eroded.

Think tank the Resolution Foundation recommended a new ‘road duty’ for EVs – levied at around 6p per mile (plus VAT) – to offset a decline in fuel duty, last month.

The Government is yet to indicate how it will plug the predicted shortfall in fuel duty.

The OBR report also highlights how much the 5p cut in fuel duty, announced in Budget 2022, will cost the Exchequer if maintained.

The Government temporarily extended the 5p cut in this year’s Budget. The OBR says that not proceeding with the planned reversal of the extended 5p cut in 2024/25 and RPI indexations in that year and every year thereafter would reduce revenue by £4bn in 2027-28.

Despite default Government policy stating that the fuel duty rate will rise in line with RPI inflation each year, fuel duty had been frozen at 57.95p a litre between 2011 and 2022, before the 5p reduction to 52.95p a litre.

However, the OBR says that a similar threat to the £7bn collected annually in vehicle excise duty (VED) from EVs has been reduced, thanks to the Government’s decision to make electric cars, vans and motorcycles subject to the tax from April 2025.

Claire Evans, fleet consultancy director at Zenith, said: “We know that road transport emissions reductions are vital if the government are to meet their 2050 net zero target. What our industry needs to deliver this is certainty.

“While positive steps have been taken, such as the ZEV mandate, confirmation of future benefit in kind rates and a clear roadmap on ending the sale of ICE vehicles, the puzzle is not yet complete.

“As an industry we urgently require clarity and long-term thinking on items such as renewable fuels and how future motoring taxes can replace fuel duty.

“Providing clear direction is vital for our industry to invest with confidence.

“Any area of uncertainty will only lead to a delay in the developments of new products and charging infrastructure that must be in place to support fleet operators and consumers to make cleaner mobility choices.”

The OBR Fiscal risks and sustainability report can be found here.

1 thought on “Tax impact of electric vehicle uptake revealed in OBR report”

  1. Policing Through

    This is just one more example of how this while net zero nonsense has not been thought through. Actually, it has not been through about at all.

    So EVs are to be charged 6p a mile. What a great idea. Well, no not at all. What will come next is that none EVs will be charged a premium for wrecking the planet, despite the fact that they do not and emit far less CO2 than manufacturing an EV battery. Never mind. Khan has won his battle to extend ULEZ to the M25. There will be cameras everywhere tracking everything. Eventually, cars will all have trackers so that they can be charged. Never mind. When they are stolen, they should be easier to find. I would not hold your breath on that one.

    We are entering a new and sinister phase in our civilisation whereby you can have your bank account closed for no reason, beyond the fact that the bank does not like you, thus making you a non person. By charging by the mile, the government will be able to track how far you travel and if it so chooses, either charge you a penalty if you drive too far within a period, or simply disable the car so you can go no further.

    Palpable nonsense you might think. A few years ago, locking down the country would have been laughable too but we now know better. In Canada, Justin Trudeau shut down bank accounts of the demonstrating truckers and if anybody was unwise enough to donate, their bank accounts were shut too. We are not talking about North Korea of China here.

    Canada is a member of the Commonwealth, has the King as its head of state and is supposed to be a democracy. It is largely English speaking and uses the British common law system yet if your view differs to that of the government, you are excluded from modern life.

    Around the world in Victoria, Australia, Dan Andrew’s state police repressed free speech and expression just as vigorously. Even in the UK, while the police were ensuring that BLM was fully hydrated as it rampaged through London, military veterans were confronted by three ranks of fully kitted out riot police on the grounds of being far right extremists. In fact, they were doing what the police should have been doing, protecting our monuments and heritage.

    As for the costs of EVs, estimates of £1 trillion are now emerging to cover the vast cost of upgrading the grid, putting in new chargers and coming up with new sources of electricity that do not use fossil fuel. Nuclear will take a couple of decades to get going, so fossil fuels are here to stay for the foreseeable future.

    However, government estimates are not the most reliable around. Pick a major project. The Scottish parliament? 10 times over budget. HS2? Nobody knows but it is happily sailing past £100 billion. Cross Rail? 3 years late and again, way over budget.

    If the government is muttering about £1 trillion, you can at least double that and hope that the sums are rather better than those of the Scottish parliament building. Our entire national product is just over £2 trillion, to this nonsense will swiftly see us back in caves.

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