Lords challenge government over motoring taxes

Lord Young of Cookham (Con) asked about what consideration the government have given to replacing excise duty on fuel with road pricing.

Baroness Vere of Norbiton, theTreasury minister in the Lords, responded that there is no plan to consider road pricing.

The former Transport Secretary suggested that if taxes raised through fuel duty are not replaced, public transport will become much more expensive. He cited Office of Budget Responsibility figures which indicate that the government’s policy on electric vehicles is “rapidly eroding the £39 billion” a year “revenues from petrol and diesel” taxes.

Baroness Vere said the government see ‘many options’ for motoring taxes going forward. Considering the transition to net zero, the government should ensure that the tax system encourages more electric vehicle (EV) uptake and that “revenue from motoring taxes keeps pace while remaining affordable”, she said.

Lord Carlile of Berriew (Crossbencher) suggested that the introduction of road pricing with modern technology could lead to vehicles being priced based on their consumption of fuels – making the system much fairer. Road pricing would also enable the police to detect vehicle crime more easily, he continued.

Lord Oates (Lib Dem) asked what plans the government have to replace the lost revenue from fuel duty in a manner that is both environmentally friendly and fair for rural communities.

Baroness Vere highlighted that fuel duty raises around £25 billion annually and is forecasted to increase in nominal terms to £30.5 billion over the scorecard period to 2029. She said that the change in “fuel duty is a medium-term to long-term problem which will allow everybody who has an interest in this to have their say and an appropriate solution will be found”.

Lord Kirkhope of Harrogate (Con) expressed concerns about the cost of motoring, including insurance, and said: “If the government have any idea of road pricing, would it not be fairer to look at all those who use our roads apart from those who merely pay the vehicle excise duty”.

The minister acknowledged the concern and said that this issue has been top of mind for the government. As a result, the government has frozen fuel duty since 2011 and has introduced a 5p cut on fuel duty since 2022.

Lord Kamall (Con) suggested that as the shift from polluting vehicles to EVs takes place, the government needs to move from “polluter pays to the principle that those who contribute to the wear and tear of our national infrastructure have to pay as drivers”. He urged the government to think about a plan to fund the upkeep of the roads in the longer term.

Another Conservative peer, Baroness Goldie, echoed Lord Young's concerns and said: “I have a difficulty in understanding the Treasury’s opaqueness in responding to this [OBR] analysis…. Is that opaqueness attributable to fiscal timidity or dogmatic blindness”.

The minister replied that the government has forecasts for what will happen to fuel duty and is considering “all sorts of ideas”. She added: “What is going on here is simply that a number of options can be taken forward as taxes shift and change over time…. All taxes shift and change over time with regard to the amount of money they bring into the Exchequer.”

You can read the full debate here.