Road pricing could become yet another tax

The RAC's pay-as-you-drive proposal reopens a historic can of worms, says Philip Johnston.

The combined taxes raised from motoring are around £42 billion a year Photo: Alamy

The last time road pricing was suggested, Downing Street's website crashed as 1.8 million motorists visited it to register their opposition. But the idea has not gone away. A new report from the RAC Foundation says that charging drivers for each mile they travel is "inevitable" if future traffic gridlock is to be avoided. Stephen Glaister, the RAC's director, argues that there is no credible alternative to a "pay-as-you-drive" system in view of the rising population and the likelihood that the number of cars and lorries will grow by a third over the next 15 years.

Prof Glaister believes the public could be won over to the idea if it were combined with a judicious mix of benefits to make the initiative easier to swallow. These would include a cut in fuel duty and the abolition of road tax; guaranteed revenues for road improvements; and compensation for delays. However, the Department for Transport – which got its fingers burnt when the subject was debated a few years ago – is having none of it. It insists there are no plans to charge drivers to use existing roads (though not necessarily new ones) because they are "publicly owned and have already been paid for by the taxpayer".

Indeed they have. Many times over. Long, long ago our car tax, now known as Vehicle Excise Duty (VED), was called the Road Fund Licence. As the name suggests, it was set up in 1909 specifically to collect revenues for the roads. In the Commons, David Lloyd George, the chancellor, was asked by an opposition spokesman: "Is it intended to go to general revenue? If it is going to roads, we think it a fair proposition." Lloyd George replied: "My proposal is the whole of the moneys should go on the road."

It may be what the Welsh Wizard intended but it is not what happened. Within a few years, the Treasury started to raid the fund, blurring the link between what motorists paid and the roads they got in return. As with the National Insurance Fund, ostensibly set up to pay for pensions and welfare, road taxes became just another way of raising money for general expenditure. It stopped being called the Road Fund Licence in 1935.

Today, it is estimated that the combined taxes raised from motoring are around £42 billion a year; yet only about £10 billion is spent on new roads and maintenance. Taxing motorists is a significant source of general revenues which the Treasury, in this time of austerity, is hardly likely to give up. The question is whether road pricing would actually raise more for the Exchequer than the current tax regime.

Supporters believe that satellite tracking technology makes the concept viable and would cut congestion by about half. A government-commissioned study a few years ago suggested a charge of up to £1.34 a mile, though the price would vary depending on which road you were using and when you were travelling. So, those living in towns and cities or travelling on motorways at peak times would pay most; those in the countryside where the roads are less busy would pay a lower charge (though they tend to use the car more).

However, it is not strictly true that this would introduce a "pay-as-you-go" concept to motoring. We already pay more for travelling further through the huge amounts of duty and VAT that are raised from fuel. One estimate suggests that a distance-based element of about 5p a mile for cars is already factored into fuel tax, though this is not a formula the Treasury ever talks about. Might it not make more sense, then, to scrap the car tax entirely (winding up the expensive administration for collecting it) and load the cost of driving entirely on to fuel duty, which would also catch foreign cars in the net? Another option, used in Oregon, is to create a new payments structure where drivers pay their mileage charge when they fill up at the pump. But this still would hit people who have to travel at peak times and have no easy access to public transport. Matters are further confused by the use of road and fuel taxes to achieve environmental policy goals by encouraging low carbon emissions and greater efficiency.

The RAC report has reopened a can of worms whose lid has popped on and off many times since the 1920s. In 1964, the Smeed Committee advocated road pricing and yet here we are, nearly half a century on, still wondering what to do. Apart from public hostility, the biggest problem with road pricing schemes is that they will inevitably cost a fortune to set up and administer. By far the simplest option is to sell off the motorways and the trunk roads and charge a toll to use them. A feasibility study by NM Rothschild estimated that privatisation could raise £100 billion for the Exchequer, helping to solve the debt crisis. This is a radical idea but would only be acceptable to the motoring public if VED was scrapped, thereby taxing use instead of ownership. But you just know, don't you, that we would end up paying both.