AUS
NZ
UK
CA
USA
IND
Highlights
- UK’s finance ministry has said that the government might be required to introduce new taxes as a replacement for fuel duty amid UK’s net-zero push.
- UK’s debt is expected to increase as it shifts to a lower carbon-emitting future.
The UK finance ministry has stated that the government may have to introduce some new taxes to replace the loss of revenues from fuel duty and other motoring taxes.
The UK plans to phase out fossil fuels as the country has pledged to reduce carbon emissions sharply by 2035 and to achieve net-zero emissions by 2050. The UK has also banned the sale of new fossil fuel-powered cars from 2030, thus highlighting the urgency for the treasury to identify a potential alternative to fuel and other motoring taxes.
Revenues from fuel duty and vehicle excise duty were approximately 1.7 per cent of the UK’s economic output, with FY 2020’s total fuel duty and vehicle excise duty revenues standing at £37 billion.
According to UK’s budget forecasters, the UK’s existing £2 trillion public debt is expected to increase as the nation makes investments in order to transition towards a lower-carbon economy.
The finance ministry added that if the government plans additional public spending, they will have to consider changes to existing taxes and also identify new revenue streams in order to transition towards a sustainable future while remaining consistent with the UK’s fiscal policies.
RELATED READ: How will UK’s net-zero transition impact energy costs?
Possible revenue streams to replace fuel duty loss
Carbon pricing
It’s a kind of duty imposed on carbon pollution with an aim to discourage polluters from increasing greenhouse gases.
Though, the finance ministry has said that the temporary increase in revenues from a hike in carbon pricing may not be sufficient to cover the loss of revenues from fuel-related taxes.
However, the finance ministry did state that carbon pricing revenues is still expected to help the government during the energy transition.
Carbon pricing can include a carbon tax, a cap-and-trade system or some other market based financial mechanism, which can allow various pollutions sources to reduce their carbon emissions.
Road pricing
Road pricing has been found to be a fair alternative to fuel duty and other motor-related taxes, according to a public policy think tank Social Market Foundation (SMF).
UK politicians have so far hesitated considering road pricing as an alternative to fuel taxes due to a long-held idea that voters may be against such a tax.
However, according to a recent SMF survey, about 38 per cent of people were for road pricing as a replacement for fuel duty and other taxes, whereas 26 per cent were against such a decision. The survey also found the remaining 36 per cent were open to persuasion.
The results of the survey indicate a greater number of voters are either for or willing to be open to such an alternative.
Pay per mile road pricing is a way for the UK government to generate revenue from car owners by taxing drivers on the frequency and the distance covered by drivers when they drive on a public road.
