Tax electric cars because they are too popular, think tank argues

The report by the Resolution Foundation said that the UK must reform its £32 billion of road taxes in light of the take-up of electric vehicles being faster than experts predicted.

Electric vehicles now account for one-in-seven new cars bought last year.

The research claims that the lower taxes given to electric cars, due to their lower emissions, has led to a “growing fiscal hole” in the public finances which would have been collected from fuel duty.

The transition is set to drive a £10 billion a year revenue shortfall by the early 2030s, the think tank said.

In addition, the report noted that tax-breaks for electric cars disproportionately benefit richer middle class families, meaning that taxes fall unfairly on poorer households with non-electric vehicles.

It suggested a 6p per mile “Road Duty” for electric vehicles to offset the hole in the Treasury’s income over the decade.

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 more even 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.”