Fears we will see pay-per-mile to replace VED in the next Budget

Greg Knight, the former All Party Parliamentary Historic Vehicles Group chairman at Westminster has said "if the Government wishes to introduce a pay-per-mile scheme, I would expect a thorough consultation including privacy implications, technical requirements and the huge costs of implementing the scheme. I would also expect a consultation involving the historic vehicle community".

See our briefing on the Autumn Budget 2024. That includes an update released on 10th August 2024. Briefing

Fuel duty - see our report on the risk of a fuel duty hike in the Autumn Budget on 29th August 2024. More


How will UK road tax change in the coming years? - see our article on 10th May 2024. More

Posted: 240921
Pay-per-mile as a road tax
There are rumours flying around that the UK Government will introduce a pay-per-mile road use tax in the next Autumn Budget on Wednesday 30th October, but there has been no mention or confirmation of this. Although there are no details on how such a tax might be implemented, there are other countries that have been running such road pricing schemes.

Road tax (VED)
Currently every car on the road is subject to vehicle excise duty (VED), more commonly known as ‘road tax’, barring a handful of exemptions including electric cars and classic cars over 40 years old like the MGBGTV8.

From April 2025 it's understood owners of electric cars will pay VED. The OBR have forecast a billion-pound (13.7%) climb in road tax to £8.3 billion for the year 2024-25.


Road use tax
With a typical annual mileage by a UK driver of 7,000, reports circulating suggest the average driver of a petrol car would pay £252 to use the roads. Rates for electric vehicles might be less. One possibility might be different pay-per-mile rates for more polluting cars (for example heavy SUVs, 4x4s and commercial vehicles and trucks. Naturally the classic car enthusiasts will be concerned over their retention of the nil rate VED for cars over 40 years old. But if a standard rate for petrol cars were to be applied then on a pro rata basis, and assuming a typical annual use of 2,000 miles, that would be a road use cost of about £70 pa.
Fuel duty
In addition to road tax (VED) drivers of petrol and diesel cars also pay another tax - fuel duty and VAT thereon - on fuel pumps at filling stations. The fule duty rate on standard petrol and diesel is 52.95 pence per litre, which has been frozen since 2011-12 and reflects a temporary 5 pence cut made by the previous Chancellor. With the addition of VAT on fuel duty that is 63.54 pence. With average mileages of 7,000 pa in the UK, and say a typical mpg of 35mpg, that's £577 of fuel duty and VAT a year at present.

How will a pay-per-mile system work?
Other countries use electronic road pricing (ERP), where gantries are fitted with sensors and cars have electronic passes to pay as they drive. It's not that different from the Dart Charge over the bridge carrying the M25 over the Thames east of London. It's also used on some of the toll roads on the continent, but it's been deployed at a much greater intensity. That could be the other way of replacing the VED revenue, hit high mileage road users and discourage unnecessary road use.

Introducing a pay-per-mile system could also involve significant costs for car owners who have to fit a sensor to their current car or other vehicle.

Budget on Wednesday 30th October 2024
As usual we will have a prompt report on the Chancellor ends hers Budget Statement to the House of Commons.