31st August 2022

Is it time for road pricing schemes to replace fuel duty?

Why does fuel duty need to be replaced?

With the large push towards EV, particularly in haulage where emissions accounted for 27% of the UK’s total emissions in 2019, the new method of taxing roads could have a significant impact on the haulage industry.

A major factor in encouraging the transition from fossil fuel vehicles to EV or other green alternatives remains financial, because of the tax benefits for green vehicles in the existing system. 

Currently, owners of low emission vehicles pay reduced road tax, or in some cases are not required to pay at all. While fuel tax is currently collected at the pump in addition to VAT. But as fossil fuelled vehicles disappear from the roads, so too will the revenue from petrol and diesel sales, while at the same time the majority of vehicles will no longer be required to pay road tax.

As the government deadline for ending the production of petrol and diesel vehicles in 2035 draws nearer, the question remains – how will the resulting £35 billion gap in revenue streams be replaced? If it is road pricing, how could it be applied and what will the impact be for one of the most heavy-use groups on the road - drivers and fleet operators?

Is road pricing the answer?

For many in government and the haulage industry, the answer seems to be yes. In February 2022, the Transport Select Committee reported that there was no viable alternative to road pricing and many experts have agreed, saying that discussions with the haulage sector are already overdue on how, not if, this approach should be implemented.

How is it used elsewhere?
The EU does not have an overall road pricing policy, so many European countries have trialled their own approaches:

  • German road pricing is only for HGVs, with rates determined by distance travelled, number of axles and emissions.
  • France has long had tolls on motorways due to their construction by private companies. There are currently some 11,000km of active toll roads, but increasingly telematics are being used to automate payments and make the process more convenient.
  • Italy also has toll motorways and uses a congestion charge in major cities, including Milan.
The use of a road pricing tax has not been implemented nationwide in the UK before, but there are some high-profile areas of the country where it has become accepted and normalised. These are tolls or zones where drivers are expected to pay in order to use roads (such as the M6 and the Dartford Crossing) or pay a fee for driving high emissions vehicles, as with London’s Ultra Low Emission Zone (ULEZ).

While there might be some initial pushback, if the schemes are implemented consistently, they can be made simple to use (automated payments), charge only for usage and also become a tool to encourage more environmentally friendly driving habits.

Methods of road pricing

Road pricing has a lot of support, but the big challenge is identifying a method that is convenient for drivers, affordable to implement and possible to roll out nationwide. 

Based on road type
Possibly the most straightforward approach would appear be putting charges on the most used roads that can be paid using static toll gates – including all motorways and major A roads such as the A40, A14 and the A1. However, this is likely to negatively affect road hauliers, who have no option other than to use these major roads and could end up shouldering a much larger bill as a result.

While it is not an option for trucks, many drivers may opt for smaller roads to avoid tolls and minimise charges, resulting in increased congestion that could impact the effectiveness of final mile fleets.

A straightforward solution for fleets would be to incorporate tax into existing telematics systems which record distance and time on the road. However, this may require fleet updates, adding additional costs and requirements at a time when the focus for fleets is affording the cost of upgrading from fossil fuel during a cost of living crisis and skills gap.

Having such specific data means that future governments would be in a position to vary tax rates based on driver habits, bottlenecks and times of day. This could have benefits for car drivers who might be able to travel off-peak or on less congested routes, but the areas most targeted are likely to be essential haulage routes, again putting the industry at risk of carrying a higher tax burden.

A simpler system would be to bill by mileage, with readings being taken periodically and registered with authorities.

However, this system is perhaps too simplistic. With logistics technology continually developing and enhancing approaches, this data-light method may seem outdated in comparison. This is because considering mileage in isolation does not provide a detailed picture, which could be used to add more granular control of how tax is collected, rather than a flat rate – reduced rates for off-peak travel or vehicle type would be impossible to factor in when tracking mileage alone.

A lack of consistency

While regional pricing has been used before, it has never been established nationally in the UK. Trying to adopt a new policy is likely to complicate existing systems and it will be challenging for drivers to know which rates will apply to them if they must move between systems during a journey - while England could adopt one system, a different approach could be adopted in Wales, Northern Ireland and Scotland, adding additional confusion alongside the patchwork of new and existing local schemes and could lead to unfair rates of taxation.

For a new scheme to operate effectively, it will need to be a national solution that replaces existing approaches. This means that the solution would have to incorporate ULEZ-style environmental elements and bring regional considerations into its approach.

Road pricing seems to be the popular option among political leaders but determining which methods of tracking road users are going to be the most effective is a much tougher question due to the huge range of pros and cons for each option.

There are a lot of question marks over what will happen next, and with such a short amount of time to trial and prepare a viable nationwide solution, there is a lot of pressure on the government to make decisions. It is therefore vital that the haulage industry makes sure its voice is heard as the government considers its options.

Ultimately, the new system will not please everyone, but if its integration can be easy to understand and use, as well as taking steps to be as fair as possible in how payments are calculated, new road tax legislation should not be something for fleet operators to fear.

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