Rishi Sunak is considering plans to charge motorists ‘by-the-mile’ amid concerns over a £40 billion tax shortfall created by the switch to electric cars, The Times reports.
The newspaper reported that the chancellor was “very interested” in the idea of a road pricing scheme.
It comes as the Prime Minister confirmed plans to end the sale of all new petrol and diesel cars from 2030 and new hybrid and plug-in hybrid cars that can “drive a significant distance without emitting carbon” from 2035.
According to the Institute for Fiscal Studies, fuel duty – frozen since 2011 – brings in around £28bn in a typical year with the balance coming from VAT on fuel sales and VED.
Rishi Sunak is keen to replace lost fuel duty and vehicle excise duty (VED) as the UK’s shift to electric vehicles gathers pace.
Recent figures from the Society for Motor Manufacturers and Traders (SMMT) shows that almost 76,000 battery electric vehicles have been driven from showrooms in the year to date.
In comparison, more than a million petrol and diesel-powered cars have been sold.
However, the figures do indicate a shift in behaviour as the range of electric models on offer is expanded.
The SMMT stats show a 168 per cent increase in electric sales this year, while petrol and diesel is down more than 39 per cent and 50 per cent respectively.
AA president, Edmund King said: “The government can’t afford to lose £40bn from fuel duty and car tax when the electric revolution arrives.
“It is always assumed that Road Pricing would be the solution but that has been raised every five years since 1964 and is still perceived by most as a ‘poll tax on wheels’.”
RAC head of roads policy, Nicholas Lyes, said: “While not paying car tax is clearly an incentive to go fully electric at the moment, we will very soon need a system that can levy tax on both conventionally fuelled and battery electric vehicles fairly.
“If this isn’t addressed, we risk finding ourselves in a situation where petrol and diesel drivers continue to pay all the tax for using the roads which is unsustainable.”
A “pay-as-you-drive” concept was last explored by Tony Blair’s government in 2007 but was abandoned due to opposition from motorists.