What is a ‘pay per mile’ scheme and how could it work in Britain?

Rumors have reached MP that the government is considering implementing a pay-per-mile scheme to compensate for the shortfall caused by electric vehicle drivers not paying fuel duty.

Pay-per-mile schemes work as they say – drivers would be taxed based on how much they drove on Britain’s roads. The idea has been around for years and has been touted as a simpler alternative to fuel duty, but has gained more traction with the growth of electric cars.

Chancellor Rachel Reeves is understood to be considering such a scheme and was recently asked to implement one by a group of transport industry bodies such as the RAC. Duties levied on petrol, diesel and other fuels currently generate around £25 billion in revenue for the Exchequer.

On Thursday Conservative MP Alicia Kearns said the introduction of such a scheme would be disproportionately unfair to people living in rural communities. She also said it would have a negative impact on armed forces working away from home, disabled drivers, parents of disabled children and care workers.

She said the average car would cost £444 under the scheme, but those in rural areas who drive more often could face bills of up to £600.

She said she surveyed some of the electorate and found that 81% disagreed with the idea, but 78% would not consider reducing the use of cars as a result, which would counter any environmental benefit.

Kearns said: “We shouldn’t be penalized because of where we live.”

What is a ‘pay per mile scheme’?

Under a ‘pay per mile’ scheme road users pay a fee based on the distance they travel within a given time period.

By 2030, the government could lose £9 billion of fuel tax revenue thanks to electric vehicles, according to accountancy firm PwC. The Conservative government introduced a 5p per liter reduction in fuel duty in March 2022. Before that, the fuel level had been frozen at 57.95p since March 2011.

With Reeves warning that Labor faces a ‘black hole’ before the budget, it has been suggested that a ‘pay per mile’ scheme could help balance the government’s books.

How could it work?

‘Pay per mile’ schemes work by using cordons on specific roads, in-car GPS or odometers, or satellite monitoring, and road users often pay in advance.

In Singapore’s ‘pay per mile’ schemes, users pay more to use roads at peak hours.

Public transport charity Campaign for Better Transport (CBT) has encouraged Reeves to embrace a UK pay-per-mile scheme for electric car drivers.

Other campaigners including the RAC’s head of policy Simon Williams called for the fuel duty to be replaced entirely by a pay-per-mile system.

The CAP’s proposed scheme would charge drivers of zero-emission vehicles (ZEVs), such as electric cars, based on how far they travel.

Campaigners at the CAP have called for these drivers to pay less than drivers of standard fuel cars, but be charged a ‘fair charge’ for their road use.

Under the proposed plan, drivers who buy a ZEV before the implementation date would be exempt from the charge, helping to speed up the transition to electric motor vehicles.

CBT suggested that the scheme could work through regular odometer readings (rather than using road cameras or satellites).

What are the benefits?

The benefits of this week’s proposed ‘pay per mile’ system would be to level the playing field between drivers of petrol and diesel powered cars and electric cars and to compensate for the drop in fuel duty.

Supporters believe that a change in taxation is inevitable as electric vehicles become more widely accepted, and believe that ‘pay per mile’ is the fairest option.

The RAC has also suggested that retailers could charge motorists a fairer fee for petrol and diesel if a pay-per-mile system was adopted across electric and petrol and diesel vehicles.

RAC head of policy Simon Williams said “Normally we’ve been against any increase in duty, but we’ve been saying for a long time that motorists are not benefiting from the current discount because retailers’ margins are much higher than average.

“As more and more electric vehicles hit the roads, the government will have to tax drivers differently.

“We think the way forward is to replace fuel duty with a pay-per-mile system as soon as possible because the only tax that would be charged on fuel is VAT. This would give retailers nowhere to hide.”

The RAC said retailers’ margins – the difference between what they pay for fuel and the pump price – were 10p per liter for both fuels last week, compared to the long-term average of 8p per litre.

CAP is leading a forum made up of 37 transport-related organisations, which it said would support a move by the Treasury on vehicle taxation.

The Federation of Passenger Transport, which represents bus and coach operators, said “pay-as-you-go” vehicle taxation could help prevent congestion, make public transport “more attractive”.

CBT director of policy and campaigns Silviya Barrett said: “The new chancellor faces a black hole. A zero-emissions vehicle should be cheaper to drive than a more polluting vehicle, but it’s not fair for these drivers to pay a share, and a pay-as-you-drive model can achieve this.”

What are the disadvantages?

Any road pricing scheme would hit people in rural areas or who depend on their cars more than other road users as Kearns pointed out in his letter.

Other campaign groups have claimed that pay-per-mile will be expensive, and privacy concerns arise over how drivers are tracked.

The policy is also likely to have a negative impact on workers who rely heavily on their cars, particularly in the care industry where carers rely heavily on their own vehicles to get around.

It would also be a burden for people who regularly use their cars in areas that do not have good public transport networks.

It has also been suggested that such measures are ‘regressive’, targeting people on lower incomes the most.

Alliance of British Drivers spokesman Ian Taylor said: “We still don’t like the principle of road pricing.”

“It is regressive taxation, and the means of enforcement are not cheap and it will involve tracking people’s movements all the time which is related to their own privacy concerns.”