Green Vehicle Use Could Seriously Hurt Government Revenue

While many governments around the world have actively encouraged motorists to switch to greener forms of transportation, a prominent Think Tank in the United Kingdom says they could cost in other ways.

More specifically, a study by the Institute for Fiscal Studies (IFS) and commissioned by the UK’s Royal Automobile Club (RAC) Foundation has said efficient vehicles could blow a huge hole in official revenue collection.

Researchers found that by adapting to green vehicles, taxes collected on gasoline and diesel sales could drop from 1.7 percent of GDP today to just 1.1 percent by 2029.

In addition UK road tax revenues would drop from 0.4 to 0.1 percent during the same period, which would represent a £13 billion (approximately $20 billion) shortfall in revenue.

As a result, the RAC warns that British motorists (already some of the most heavily taxed in the world) could see duty actually increase as the government tries to make up for the shortfall.

“The irony is, that while ministers encourage us to buy greener, leaner cars, they are being forced to look at ways of clawing back the money motorists think they will be saving,” said Professor Stephen Glaister, director of the RAC Foundation.

“This isn’t scaremongering,” he said. “The [UK] Treasury has already announced a review of VED bands (Vehicle Excise Duty or road tax vehicle categories) to ensure drivers make a fair contribution to the public finances, even as cars become more efficient.”

According to Glaister, among the options available to the government are forgoing the money it receives from motorists, further increasing the duty on gasoline and diesel or introducing new taxes on alternative energy sources such as electricity for vehicles.

While the first and second options aren’t likely to appeal, the third risks derailing the entire green vehicle strategy, since there would be less incentive for motorists to switch to alternative-fueled cars.

Paul Johnson, director of the IFS, said he believes the best solution to the problem would be road pricing schemes that rate the amount of tax based on vehicle use and congestion.

“Petrol taxation does not reflect the fact that the costs I impose on others vary dramatically according to when and where I drive,” Johnson said. “So many drivers, in rural areas for example, are effectively overtaxed.”

The Guardian

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  • MS

    I globally agree with this point of view.

    But there is other factor that is at least as important, most of the countries that have taxes over the gasoline are net importers of oil. Although money from taxes are transferred from privates to the government.

    Buying oil, transfers money from the country to outside.

    More efficient cars, allow transferring less money to outside of the country. So even if other taxes came to compensate that, more money is kept inside of the country.

  • Capt. Concernicus

    I’m all for a FAIR system that taxes hybrids, plug-ins and EV’s because we use the roads as much as ICE vehicles, but because we don’t use as much gas we don’t put in as many tax dollars towards maintaining/improving/expanding the infrastructure. Again the system that would be put in place would have to be FAIR. If you’re driving a gas guzzling Hummer H1 or a Ford Excursion I would hope that you’re paying at least as much as someone who is driving a Leaf. Behemoths like those two not only keep us addicted to oil overseas, but also do greater damage to the roads due to their weight. So maybe the system should tax based on weight of the vehicle and the odometer reading each year.

    I’m just spitballing here.

  • 54mpg

    less burning of oil results in less air pollution and the related burden on the whole society due to air pollution. So advantages due to more EV/hybrids far outweighs the reduction in tax revenues to the government.

  • Van

    No need to worry about loss of revenue for government services, government will simply raise the rate and shift to taxing more stuff.

    We are a nation of willing slaves, eager to vote for more government and punish the “evil doers.” What real difference is there between scapegoating the Jews and scapegoating the “one percenters.” The politics of hate trumps the politics of reason every time.

  • Las Paled

    Special interests will always try to spin things in order to stall change. The RAC which commissioned this report attends to 2.8 million vehicle breakdowns per year. Why is this of importance? Because EV’s are not prone to breaking down. An EV has 5 moving parts in its motor vs. the hundreds of parts in a gasoline powered vehicle.

    The RAC business model goes kaput if a nation switches to EV. In the next few years (once the noise/vibration issue is solved) airless tires will be added to our vehicles so there goes the flat repair business too…

  • MrEnergyCzar

    You’ll pay by how many miles you drive when re-registering your car regardless if it’s and EV or not…


  • nuevoman

    I certainly hope so. Get government out of the way. Government means punishment, not progress.

  • tami

    The roads GOVERNMENTS provide the humans they support, and by which they are supported, further society…

  • veek

    Thanks for the article, which brings up some interesting issues.

    I sure don’t want to work on a road crew on a volunteer basis, so I accept that road design/operations/maintenance, etc. are legitimate responsibilities of governments/taxpayers. Highway systems work well (maybe too well) in the West, they deserve to be funded intelligently by all those who use them, and they should probably be revenue neutral (as originally planned).

    No payment system is completely fair, but more efficient vehicles benefit everyone, so IMHO they should get a good break. A gas tax is imperfect but relatively fair and simple, and if it is now inadequate, then some other way should be intelligently debated and voted on (OK, maybe THAT will never happen). We have an automatic toll system near where I live, which scans your license plate and sends you a bill, and maybe that’s a partial solution.

    The other option is to do things the way they have been done lately — just leave an IOU for our kids, or just let our roads deteriorate.