PAY-PER-MILE: RAC calls for ‘simple and fair’ tax system should traditional fuel duty be replaced

The RAC has called for any new pay-per-mile tax system that replaces traditional fuel duty to be ‘simple and fair’ to drivers.

As more drivers switch to electric, the Government faces a growing shortfall in revenue from fuel duty – a tax currently paid by petrol and diesel vehicle users.

Fuel duty, which is set at 53p per litre, effectively acts as a per-mile charge for petrol and diesel drivers. For example, a motorist with a vehicle achieving 40 miles per gallon pays around 6p per mile in fuel duty, though the true cost is higher once VAT and retailer margins are factored in.

The RAC has urged the Government to consider a simple and fair solution for both conventional and electric vehicle owners. The organisation stressed that any new system should not increase the overall tax burden currently placed on drivers.

With fuel duty receipts forming a significant part of the Treasury’s income, there are suggestions that now is the time for the Government to plan for a future where EVs are commonplace. Without action, the shift away from petrol and diesel vehicles could leave a substantial gap in public finances.

The RAC also emphasised the need for transparency, highlighting that while fuel duty is a tax per mile, most drivers are unaware of just how much they are paying, as the charge is not displayed on fuel receipts.

An RAC statement read: “As more electric vehicles come on to the road, a replacement tax system will be needed to ensure the Government doesn’t lose too much money and that EVs pay for their use of the roads. We have said consistently that whatever any new taxation system looks like, the most important thing for us is that it’s simple and fair to drivers of both conventional and electric vehicles. We don’t want to see any additional taxation of drivers.

“We’d also like to point out that fuel duty – currently 53p a litre – is already effectively a tax per mile for drivers of petrol and diesel vehicles, the only variable is how fuel efficient a car is. As fuel duty isn't printed on receipts, it’s not very obvious how much tax we're paying every time we fill up. At the moment we calculate a driver with a 40mpg car is paying 6p per mile in fuel duty, but crucially this works out to be far more as VAT is then added on top of that and the retailer’s margin.

“There is clearly much work to be done on this which is why we were encouraging the Government to start thinking about it now.”