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The tax man cometh: How might the government solve the riddle of EV taxation?

Image: Rexel/Natural Sparx.

With one of us just having just taken delivery of a new electric vehicle, we are excited by the sea change that is now evident amongst the public in relation to the attraction to buying EVs.

When the first Nissan Leaf was purchased in 2011 it would travel a paltry 70 miles on a single charge. Journey planning was arduous and range anxiety was very real. The latest Hyundai Kona will travel 300 miles before needing to be charged and is in a different league. This is what is opening up the market for EVs, to the extent that supply for the best cars cannot now keep up with demand.

There are many challenges involved in this transition and many of them have been covered. One area that is seldom mentioned, however, is that of motoring tax. This is the most fundamental problem that Her Majesty’s Government faces from the transition to electric vehicles. The reason is that the government currently raises billions in tax from traditional motoring in fossil fuel cars powered by petrol or diesel engines. Road fund tax and fuel excise duty are big earners for the Treasury and so the phantom of a motoring UK using no petrol or diesel, and being exempt from road fund duty, will be causing a sweat in many a Whitehall mandarin.

The BVRLA recently produced a report on this very issue. Nine organisations representing economists, fleets, motorists, the automotive industry, energy providers, and local government have contributed to the report: Road to Zero – time to shift gear on tax.

The report concluded that the government needs to address the issue of motoring taxation - and urgently - in order to give long term messages to the travelling public and business who use the road system. It says no change is not an option.

This is rather stating the obvious, bearing in mind that billions are raised for the Treasury’s coffers by taxes on petrol and diesel and if there are no petrol or diesel cars post-2040, then there will be a huge reduction in tax revenues. And to make matters worse, everybody knows that this money is not all spent on provision of new roads and repair of existing roads, but instead absorbed into the general taxation fund for spending on services.

But this is not a negative message, steeped in worry that times are a’ changing. Instead, it should be looked at as an opportunity to bring forward a new system, fit for the 21st century and fairer and more sophisticated in its operation. New technology provides this opportunity.

So what are the alternatives? The government needs to raise money from private motorists with EVs that they charge at home and on public charging stations, from company fleet cars used for business and the public sector estate.

In simple terms, there are three ways that this could be done. The first is road pricing. This is familiar to anyone who has spent a holiday in France or Spain, where motorways tend to be toll roads where payment has to be made for their use. Of course, all new cars could be fitted with onboard tele metrics or a toll tag, and roadside sensors could also be used. All new EVs have GPS built in so the car knows where it is at all times and this data could easily be uploaded to a government database so that a road user could be charged a price per mile for the use of designated highway.

This system is tried and tested abroad but is unpopular in the UK, where the general view appears to be that roads should be paid for out of general taxation. However, there are examples, such as the new M6 Toll Road in the Midlands, where if you want to use it you have to pay.

So far as the benefits are concerned, though, this would allow not only some roads to be charged rather than others (thereby addressing congestion) but also at certain times of the day. In the same way that in future you will probably be charged a higher rate for your electricity if you plug your EV in to charge at 5pm, this could be used as a tool to encourage people not to use congested roads where they do not need to.

The second option is general taxation of electricity, through some form of duty or VAT on each kWh. However, this is unfair on those who do not have EVs and also unfair on electricity not being used for road transport. Against a background of rising public anger at soaring electricity prices, this seems unlikely.

More likely is a system which seeks to apply specific taxation of electricity used for road vehicles. This could be done one of two ways. The first is demand taxation, whereby each car knows how many kWh has been loaded into the batteries each time they are charged. Here, the owner of the car would be charged on the basis of that number of kWh. This could be deducted from a bank account or credit card, or possibly charged to a pre-loaded Oyster-type system.

The other way is supply taxation, where the tax is based on electricity supplied through a particular EV charger at home, in the office or out on the road.

Our favourite is the charge based on the kWh that the car has been supplied with from whatever source, at home or on a public charger. This is because this is a simple system, the technology is already in existence to operate it, but most important of all is that it is fair in nature. Less travel means less tax payable as there has been less use of the roads and contribution to the problems.

There is one fly in the ointment though. At home one of us has a 7kW charger for the Hyundai and it is connected to his eco system, which includes a 5kW solar PV system and a Tesla Powerwall 2 battery. If the power is generated from an investment made by the householder, he is unlikely to agree to be taxed on that electricity simply because it has been used in the car and not for other purposes. And vehicle-to-grid chargers as part of home eco systems raise further issues. There, charging the car to utilise an available battery system when there is excess supply of electricity and then using it in the house would be affected by the fact – under this proposal - that it costs money to put the electricity in the car battery in the first place.

So it can be seen that there are numerous technical issues which will need considerable thought. Hence the call by the BVRLA for the government to urgently commission an independent and wide ranging review into the modernisation of the motoring tax system for a zero emission future.

However, as things stand now - and particularly with the date for the ending of fossil fuel cars likely to be brought forward from 2040 – the government has to plan its action quickly as the economics of the whole personal transport system will start to collapse. The sooner the government gets on with it, the better.

Stephen Cirell's photo

Stephen Cirell

Stephen Cirell is an independent consultant specialising in local authority renewable energy projects. He is author of ‘A Guide to Solar PV Projects in Local Government’.


Geraint Lewis Chairman, Bow Draper

Geraint Lewis is chairman at Bow Draper.


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