EV pay-as-you-drive charge could have “unforeseen effects”

The Association of Fleet Professionals (AFP) has said the introduction of a pay-as-you-drive charge for electric vehicles could cause “unforeseen effects”.

This includes delaying further fleet adoption of EVs for those fleets and drivers that are covering higher mileages.

The Government has recently talked of a £22 billion “black hole” in public finances.

Vehicle Excise Duty (VED) was worth £7.4bn to the UK in 2022/23 with fuel duty just over £25bn.

Paul Hollick, AFP said there has been no indication from Labour before or after the general election that suggests a surprise initiative will be sprung on fleet managers and drivers in the Autumn Budget on October 30.

However, there have been calls from Campaign for Better Transport (CfBT), as well as Michael Dnes, a senior official in the Department for Transport (DfT) for EVs to kick off a new road pricing initiative to help pave the way for falling fuel duty revenue in the coming years.

Hollick said: “Introducing pay-as-you-drive for EVs could see fleets and drivers that cover higher miles finding it cheaper to stick to largely fixed cost petrol and diesel vehicles and the taxation system that comes with it.”

The AFP is supportive of the idea of road pricing, recognises that introducing it is a “politically difficult move”.

Hollick explained: “Road pricing is a good idea for fleets and probably the fairest and most sensible way to overhaul the system of revenue from driving to replace the road fund licence and fuel tax lost from the adoption of EVs.

“Certainly, extremely widespread and transparent discussions would be essential.

“Even if we’re wrong about a surprise road pricing announcement next month, the most we will probably see is some form of consultation but that will probably take years to complete, as will any resulting infrastructure that needs to be created to collect payments.”

CfBT’s open letter to Chancellor Rachel Reeves urging an introduction of road pricing for EVs is yet to get a response. The Treasury also declined to respond to Fleet News to comment on the future of introducing such a scheme.

Silviya Barrett, CfBT director of policy and campaigns, suggests a pay-as-you-drive charge wouldn’t necessarily need a lengthy consultation process, estimating that a 12 month notice period would be sufficient.

Barrett also suggested a tax free allowance or exemptions could be introduced for high mileage fleets like taxi drivers.

She said: “Pay-as-you-drive could be easily implemented through telematics and odometer technology in new EVs, but crucially, it would not be tracking or location based.”

CfBT said this would mean it would be a clear indication of miles travelled and would not be based on additional factors like congestion or different rates for specific roads or routes.

Road pricing has been described as a poisoned chalice for any Government that introduces it.

In fact, the Conservatives announced before the General Election earlier this summer that it would scrap road pricing.

Barrett believes EV drivers understand they will also need to contribute to the UK’s roads and transport infrastructure.

Other issues that are likely to be significant barriers to road pricing include the public reaction, which is why previous Governments have avoided the issue.

She added: “Road pricing shouldn’t be viewed as a negative by voters, but this will come down to how any new scheme is introduced and explained.”

In addition to road pricing, CfBT is also calling for VAT on charging publicly to come down from 20% to 5%, so it matches the rate enjoyed by those charging at home.

A hole in the public's finances

Harvey Perkins, company vehicle tax expert and director at HRUX, has called road pricing an inevitability, but has expected as much for at least 10 years now.

He said: “To date we’ve been proved wrong about its introduction but that may be about to change.

“There’s a bunch of arguments for road pricing, but the main point is that the state stands to lose a lot of money if we don’t do this.”

The then Conservative government considerably simplified the Vehicle Excise Duty (“VED”) regime from April 2017.

The charge now falls in three parts, the “first year rate”, due on first registration that reflects CO2 emissions, a fixed amount due from year two that applies to all cars, and an expensive car supplement that is added to any car costing more than £40,000.

This replaced a system where the annual payments were higher if CO2 emissions were higher.

Initially EV cars were exempt, but this will change in April 2025 when all three charges will apply, including the expensive car amount.

Perkins said: “Some have argued this is unfair as the average list price of an EV is higher.

“You could argue applying these rules to EVs could be counterproductive to a Government that claims it wants to encourage EV take-up.”

All these points, Perkins believes, are arguments for the introduction of a national road charging solution to raise taxes more fairly in relation to use, rather than ownership of a car or adhering to local rules like Clean Air Zones or the Ultra Low Emission Zone (ULEZ).

However, just as Hollick has also inferred, there may be other factors to consider before any road pricing scheme is introduced.

Perkins said: “Many modern cars capture all their journey information, to judge from my current and previous cars’ mobile apps, but older cars will not.

“Camera gantries and surveillance on motorways and some A roads are extensive, but does this technology capture the granular data that would be necessary?

“The estimated cost of installing the ULEZ system just in London was £145 to £155m.”

Perkins added that other barriers to road pricing include whether VED would be eliminated or replaced or whether it will remain on top of the new road pricing charges.

If road pricing is based on monitoring with technology on motorways, how will it be introduced? Will it just be on the biggest motorways and what impact will this have to traffic impact on smaller roads?

Will there be French style motorway toll booths or an electronic system like the Dartford crossing?

There are many questions that remain and the fleet industry and drivers are hoping for more clarity before the end of October.