The UK’s transition to electric vehicles would result in a £10bn tax shortfall if fuel tax is not paid for them, the think tank says.
By the early 2030s, the Resolution Foundation estimates that £10bn will be cut from the £32bn currently collected from fuel duty and vehicle excise duty.
Electric vehicles (EVs) are largely tax-free because they don’t produce emissions or run on fossil fuels.
The foundation, which aims to improve living standards for low- and middle-income families, advises against such a low-tax approach to electric vehicles.
Instead, it proposed new taxes to prevent £10bn from disappearing from the public purse.
With operating costs so low, incentives to switch to EVs will still outweigh any new taxes on would-be EV owners, according to a new report from the think tank.
It says EVs cost 60 per cent less to run per mile than conventional cars, with half of the savings coming from not paying traditional car taxes — especially fuel taxes.
How should electric vehicles be taxed?
Electric vehicles made up one in seven new cars bought last year, but will dominate the market from 2030 When the sale of new petrol and diesel vehicles is prohibited.
The Resolution Foundation says it’s unfair to keep the tax break in effect because it’s mainly the wealthy who buy new electric cars.
If two-thirds of new car spending goes to the wealthiest quintile of households, tax breaks penalize lower-income earners who can’t afford new electric cars.
To make up for projected revenue losses, the report recommends a new road tax on electric vehicles, making driving an electric car 30% cheaper than a petrol or diesel car, rather than 60%.
Tariffs can be calculated from GPS data collected by electric vehicles and paid in monthly direct debit installments. This should only apply to EV drivers to prevent double taxation of non-EV drivers.
Why demand for new electric cars is falling
Another measure proposed by the think tank is to reduce VAT Public EV Charging Stationsthese are mostly used by less affluent households, while wealthier individuals are more likely to have home charging points.
The VAT rate on electricity is from Public charging pile The group said the current 20 per cent should be reduced to 5 per cent, which is the VAT rate on home charging.