Introduction: The fiscal horizon and the case for road-user charging
The Office for Budget Responsibility’s (OBR) biennial Fiscal Risks and Sustainability report is a thorn in the side of complacency. It looks beyond the current budget cycle to appraise long-term risks—from demographics and productivity to public debt and the funding of essential services. In this edition, the debate around how to fund transport infrastructure and environmental policy takes on heightened urgency as the motor industry accelerates toward electric vehicles (EVs). One proposal that has gained renewed attention is pay-per-mile taxation for EVs, designed to reflect road wear, congestion, and environmental externalities more accurately than traditional fuel duties.
From fuel duty to road use: catching up with an electric future
Historically, the tax system has relied heavily on fuel duties, a model that aligns with internal combustion engines but becomes less effective as engines go electric. The OBR report underscores a looming fiscal mismatch: the revenue stream that pays for roads, maintenance, and future transport investments may erode as EV uptake grows. This isn’t a call to abandon green goals; it’s a push to ensure that sustainability and public finances advance in tandem.
Why pay-per-mile? Aligning costs with use and impact
Pay-per-mile, or road-pricing, means drivers pay for road use rather than merely for the energy they consume. Proponents argue this approach:
– Fairly distributes road maintenance costs to those who cause wear and tear.
– Creates economic incentives to shift travel behavior, easing congestion and reducing emissions.
– Provides a transparent, user-pays framework that adapts as vehicle technology and travel patterns evolve.
Opponents warn about privacy concerns, administrative complexity, and the political challenge of implementing a new tax system. The OBR’s risk assessment, however, highlights a broader financial truth: without reform, public budgets may struggle to cover the infrastructure and services required for a modern, low-emission transport network.
Balancing policy goals: climate targets, growth, and fairness
Taxing EVs by mileage is not merely a budgetary tool; it’s a policy instrument with climate and equity dimensions. A well-designed road-use charge can:
– Preserve the incentives for electric vehicle adoption by ensuring a sustainable funding base for highways and public transport investments.
– Encourage smart infrastructure investments, such as dynamic tolling, traffic management, and charging networks that support low-emission travel.
– Protect low-income households from disproportionate transport costs by coupling charges with exemptions or rebates for those who need it most.
Design considerations for a viable reform
Any pay-per-mile scheme must address several practical questions:
– How to measure usage accurately and privately, with options ranging from onboard devices to scalable odometer readings.
– How to integrate with existing taxes, ensuring a smooth transition from fuel duties to road pricing without creating a tax cliff.
– How to protect vulnerable users from regressive impacts while still funding essential infrastructure.
– How to use revenues to fund the maintenance backlog and invest in sustainable transport projects that reduce total miles traveled in the long run.
Conclusion: A prudent look at fiscal risks and the long road ahead
The OBR’s Fiscal Risks and Sustainability report serves as a reminder that fiscal health is inseparable from transport policy. As the economy decarbonizes and the EV fleet grows, the funding mechanism for roads must evolve in step. A carefully designed pay-per-mile approach could align pricing with actual road use, support climate goals, and bolster public finances—provided it is implemented transparently, equitably, and with strong privacy protections. For policymakers, the challenge is to craft a model that is as fair as it is functional, ensuring that the cost of movement remains aligned with both use and impact.
