Read The Full Article On: Mirror
Electric cars are great for the environment, but terrible for the Treasury – as they escape almost all the taxes drivers of petrol and diesel vehicles are hit with – and that means there could be new costs coming for everyone
f Britain makes the switch to electric cars, the Treasury will lose £40billion a year – more than the UK spends on its entire defence budget.
That’s because almost all the taxes, duties and charges that apply to petrol and diesel vehicles don’t touch drivers of fully electric cars.
In an effort to try and claw back this potential loss, the Government is looking at new ways to make drivers pay – including “road pricing”, where people are charged to use the roads themselves.
AA president Edmund King said: “While the push toward electric vehicles is good for the environment, it is not good for the Exchequer.
“The Government can’t afford to lose £40billion from fuel duty and car tax when the electric revolution arrives.
“It is always assumed that Road Pricing would be the solution but that has been raised every five years since 1964 and is still perceived by most as a ‘poll tax on wheels’.”
And that’s got people worried – especially given how much people are already taxed to drive.
Dan Hutson, head of motor insurance at comparethemarket.com, said: “The cost of running a car is already a significant burden for some and simply becoming unaffordable for others, particularly given the financial constraints people face as a result of the pandemic.”
He added: It is essential that the Government think carefully about how this rumoured road pricing scheme is implemented to protect these under-pressure groups as they struggle to cover the existing costs, let alone a further tax.”
So – just to make it clear – these are all the taxes, duties and charges that Britain’s motorists are already hit with, as well as whether alternatively-fuelled vehicles escape them or not.
Fuel duty
Charging people fuel duty brings in £28billion a year.
It’s charged at a flat rate of 57.95p a litre for both petrol and diesel.
That adds almost £32 to the cost of filling up a standard 55 litre tank.
Electric cars, of course, don’t pay a penny in duty to fill up.
VAT on fuel
As well as charging fuel duty, the Government charges 20% VAT on fuel.
And, yes, that’s on top of the duty. The IFS calculates this brings in an extra £5.7 billion in revenue a year to the Treasury.
This isn’t a tax electric car drivers entirely escape, however, with VAT also being applied to domestic energy.
But they do pay an awful lot less, with an electric car costing just about £4 to charge at home or £12 on the motorway according to Autocar – and VAT on electricity set at 5% – a quarter of what you’re charged on petrol and diesel.
That means you’d pay just 20p VAT for fuel to fill up an electric car, compared with about £12 for an average petrol or diesel one.
Vehicle Excise Duty (car tax)
Tax on people buying and owning cars brings in at £6.5billion a year.
Vehicle Excise Duty – generally known as car tax – costs as much as £2,175 when you first register a vehicle, depending on how much carbon dioxide its engine produces.
After that, car tax drops to £150 a year for petrol or diesel car or £140 a year for hybrids, LPG and bioethanol fuelled cars.
Then there’s an extra charge of £475 if the car’s worth more then £40,000 (although you save a tenner on this if it’s alternatively fuelled). You pay this for five years – starting the year after the car is registered.
Pure electric cars, of course, don’t pump out carbon dioxide at all.
They did use to incur tax if they cost more than £40,000 – but that was scrapped in April, meaning they are now entirely exmpt.
Insurance premium tax
You might not realise it, but as well as requiring you – by law – to have insurance to drive in the UK, the Government also charges 12% tax on that insurance.
Given the average insurance at the moment is £701, according to comparethemarket.com figures, that means £84 from your premium is going to the Treasury.
However, this is one tax that applies no matter how your car is powered – be it petrol, diesel, electricity or by hydrogen fuel cell.
‘Congestion’ charges
It’s not always free to use public roads in the UK – with road pricing schemes already estabished in several areas.
The most lucrative is London’s congestion charge – which brings in £200million a year according to the IFS – but it’s not the only one.
Durham also has a congestion charge, applying between 10am and 4pm, Monday to Saturday, and costing £2.
Then there are a string of toll bridges and tunnels – where drivers have to pay to cross.
Electric vehicles pay the vast majority of these charges the same way more traditionally fuelled cars do – but there are some exceptions.
While the London Congestion charge of £15 a day applies to everyone for example, an extra £12.50 is charged on top for cars, smaller vans, motorbikes and other lighter vehicles that don’t meet emission standards.
Electric vehicles – along with a string of less polluting cars – escape this.
What about road tax?
Roads are paid for from general taxation, not directly by motorists.
In fact, “road tax” was abolished all the way back in the 1930s – a process started by none other than Winston Churchill.