Summer budget 2015

AA says Government should avoid motoring tax hikes

AA says Government should avoid motoring tax hikes

AA says Government should avoid motoring tax hikes

Government should avoid tax hikes on motorists in the Budget, warns the AA. A week ago, 73% of an AA-Populus poll of 25,810 AA members said they fear a post-election rise in motoring taxes. Among blue collar workers, that worry rises to 83%.

More than 10% of all UK tax comes from motorists’ pockets – and the share is growing, the AA highlights in the run-up to Wednesday’s budget. Fuel duty receipts from January to May are already £120 million higher than last year, and last financial year’s were more than £2 billion higher than in pre-recession 2007/8.

Promised freeze

Although the Chancellor promised that the fuel duty freeze since 2011 is set to continue in September, the AA is concerned that urban emissions scare-mongering will be used as an excuse for raising fuel and car ownership tax (VED) – as has been the case with Islington’s £100 levy on diesel car ownership.

Extra VAT

In the March budget, George Osborne committed to the cancellation of a fuel duty rise in September: “The Fuel Duty increase by RPI planned for 1 September 2015, due to be 0.54 pence per litre, will be cancelled.*” In reality, for the past three months, the Treasury has been getting at least an extra 0.5p a litre in VAT from non-business diesel drivers. Although the wholesale price of diesel has been the same or as much as 3p a litre lower than the cost of petrol, fuel retailers have been charging up to 6p a litre more for diesel at the pump – 20% of which is VAT.

£26.9 billion in fuel duty

UK voters with cars and other vehicles pay more in fuel duty (£26.9bn) alone than UK firms and companies pay in business rates (£26.8bn) and the equivalent of 97.5% of what is received through council tax (£27.5bn, according to the Budget Report 2015, Table C.3, page 110: Current Receipts - OBR). Other motoring taxes raise another £6.1bn in vehicle excise duties, and a further £25bn from VAT on fuel and car sales, company car tax and insurance premium tax. Of the £582.6 billion raised in UK taxes last financial year, almost 10% came from motorists.

Other income from drivers

These sums do not include: VAT from car repairs and other motoring-related expenditure, income to councils from parking charges, resident parking permits and penalty charge notices (parking and moving traffic offences), congestion charges, and bridge tolls. Dartford Crossing, alone, generates £90 million a year in income. All these contribute to the public purse at national or local level.

A more innovative approach

Rather than an even greater burden of tax, the AA calls on the Chancellor to be more innovative and use more of the existing tax haul to influence motoring behaviour – helping government to meet CO2 and other emissions targets while potentially generating more tax in the short-term. Examples include:

Electric cars

Stimulating the electrification of the ‘second’ family car – last month, AA President Edmund King set out the argument for switching the focus of the electric car revolution on to the ‘second’ family car. Its pattern of use fits the range, charging and environmental profile of an electric car far better than any other. King suggested a scrappage scheme to encourage take-up, with all the short-term revenue benefits of VAT and new car tax income. The move would most affect vehicles that do lower local mileages and therefore generate less fuel duty, in more emissions-critical environments.

Conversion of main urban polluters

Not jumping on the local tax bandwagon which exploits the demonising of diesel (the fuel that now makes up the fuel duty shortfall from petrol engines becoming more efficient), but offering fiscal encouragement for converting the main urban emissions polluters to hybrid or electric alternatives. The new trial of electric buses in London is an example, potentially leading the way for the conversion of other vehicles, such as taxis, regular delivery vans and lorries, etc. Greater electrification of urban service vehicles could create an exportable blueprint for other cities. This would stimulate their manufacture and related tax for the Treasury.

Road improvements

Ploughing more of the tax haul into road improvements that would improve the efficiency of the road network, reducing emissions from snarled-up traffic. It would cut business transport costs and allow businesses to generate more tax by using more of their turnover to expand - rather than losing it to the atmosphere from lorries and other business travellers stuck on roads, wasting fuel and time. A quick and easy example would be the provision of more refuge areas on managed motorways to reduce lane closures and allow hard-shoulder running to achieve its maximum efficiency and safety.

If we gave up our cars, the country would collapse – such is the Chancellor’s dependence on motoring for 10% of the UK’s entire tax-take

Edmund King, AA president

Vehicle revolution

“If we gave up our cars, the country would collapse – such is the Chancellor’s dependence on motoring for 10% of the UK’s entire tax-take,” says Edmund King, the AA president. “A vehicle revolution is ‘in the wind’ but it needs to be further encouraged.”

“The AA does not want a U-turn on the promised continued fuel duty freeze for September and reminds government that, if it is planning future rises, it is a tax related more to mileage than means. Owners of high performance cars pay extra for the vehicle’s higher fuel consumption but it also stunts the income of less well-off drivers for whom mileage may be the difference between having and not having a job.

“For that reason, fuel duty should remain frozen and other motoring avenues, that generate tax but also stimulate development, should be tried. A scrappage scheme could pay for itself through VAT and could serve the dual function of raising tax and meeting national emissions targets.

“Simply piling on more fuel duty when high pump prices undermine demand will backfire on the Government. It mirrors some London boroughs’ barely-disguised local tax grab from parking permit holders*, and misses an opportunity to stimulate a green change in transport – and a tax windfall to help settle the country’s books.”

(6 July 2015)


Section 1.106, page 36, Budget Report 2015

** “Similarly, the London Borough of Richmond upon Thames's charge for a permit to park in a Controlled Parking Zone, which was implemented on 2 April 2007, is based on the emissions of the vehicle concerned. The decision to classify the charge as a tax on pollution is similar to the LEZ: the charge relates to the vehicle emissions rather than the direct consumption of a service.

Letter from Karen Dunnell, National Statistician, Office of National Statistics, in response to a Written Question from Eric Pickles MP. Parliamentary Written Answers, 9 February 2009”

(Source: ‘Taxes and charges on road users’, House of Commons Transport Committee, July 2009.)