If the demand for electric cars proves to be stronger than forecast, the UK may suffer a double whammy of reduced tax revenue and greater congestion.
The Government will ban the sale of petrol and diesel vehicles by the end of the decade and cars will be cleaner and greener, enabling the UK to achieve the goal of a net carbon zero future. Right? Well, not quite…
Boris Johnson will doubtless be keen to emphasise to world leaders the speed at which Britain’s transport revolution is happening when he hosts the Cop26 meeting in early November. Chancellor Sunak may even be tempted to implement measures to speed up the transition in the budget in October, perfectly timed for the week before the conference in Glasgow.
However, there are two potential issues which could derail the Government’s plans. The first is if the transition occurs more slowly than expected, because new electric battery vehicles are too expensive or if the infrastructure required to keep them charged is not yet in place.
The second is the possibility that demand for green cars is as strong, if not stronger, than forecast, in which case the Government will face problems of greater congestion and reduced tax revenue. The two issues are linked, as one of the attractions of buying a new electric car is the lower rate of excise duty charged.
Road pricing could reduce congestion
The cost of petrol, fuel duty and vehicle excise duty is around £1,100 per year for the average petrol or diesel car, but only £320 for electric vehicles, as reported by the Tony Blair Institute for Global Change. According to the Institute’s paper, this reduces the cost of motoring by 71pc and, as the switch to green vehicles grows, will take a huge bite out of the Treasury’s tax take, as much as £10bn by 2030, £20bn by 2035 and £30bn by 2040.
As the cost of driving plunges, motorists will be encouraged to drive more and congestion will worsen. There is a high cost in terms of lost productivity, regardless of whether a driver uses a petrol, diesel, hybrid or fully electric vehicle. Which begs the question of whether technological innovation needs to correspond to new thinking as to how motorists pay to drive. Specifically, whether a system of road pricing would solve the problems of congestion and loss of revenue.
Although governments of different hues have tackled congestion by building more and larger roads, there are now 35m cars on the road and the traffic jams have increased. There have been attempts to use different solutions, with the congestion charge introduced by Ken Livingstone when he was mayor of London the most significant.
The justification for road pricing is that the costs of crawling through central London are higher than driving on rural roads and the difference should be reflected in the price paid by motorists. Just as rail fares are cheaper during off-peak hours and a cinema ticket is cheaper for a matinee performance than for a Saturday night. Modern technology such as Uber-style apps could vary the cost of driving depending on the time and traffic conditions.
Practical and privacy issues
Yet there are practical issues, such as preventing politicians from using road pricing as a cash cow and how much to charge the low paid, such as care workers, who have to make multiple daily visits on busy roads at peak hours and could not be expected to rely on public transport. There is also the question of whether road pricing would deter motorists from switching to electric vehicles.
Then there are privacy issues; there would be most likely resistance to the idea that the state would know exactly where you were when on the road.
That said, there could be as many as 25m electric battery vehicles on the road by the mid-2030s, which could mean longer traffic jams and a large deficit in the public finances. It would also mean the political default position of doing nothing for fear of a motorists’ backlash is not an option.