Petrol/diesel car ban ‘death knell’ for fuel duty revenues

Government plans to ban the sale of all new conventional diesel and petrol cars in the UK from 2040 in a bid to tackle air pollution ‘sound the death knell; for fuel duty revenues’, currently around £27.9bn, according to analysis from PwC

Kevin Nicholson, head of tax at PwC, said: ‘This will leave a big hole in the Treasury's coffers. Fuel duty currently accounts for 4% of UK tax receipts, bringing in nearly £28bn this year. In comparison, stamp duty land tax brings in about half that amount, and council tax raises £30bn.’

Fuel duty revenues have been declining as a percentage of GDP for some time, partly because of the trend for fuel efficiency, and the Office for Budget Responsibility forecasts they will drop by about 0.5% of GDP by 2021/2. 

The government has stated that from 2018/19 the main rate of fuel duty will rise each year in line with the RPI index, having been frozen since 2011. 

Nicholson said: ‘These rises will be pretty meaningless once petrol and diesel car production stops.

‘Environmental policy can't be dictated by tax.  But today's announcement does mean the government will need to find alternative sources of tax revenue.

‘And it would be a mistake to simply look for ways to plug the hole left by fuel duty. The fourth industrial revolution, with new technologies like artificial intelligence, is going to continue to shake up the tax base. 

‘More immediately, Brexit will force change to the tax systems as rules need to be revisited.   The need for a fundamental review of the UK tax system can no longer be ignored.’

The petrol and diesel new car ban forms part of the UK plan for tackling roadside nitrogen dioxide concentrations, published by Defra and the Department for Transport, which outlines how councils with the worst levels of air pollution at busy road junctions and hotspots are required to take action immediately.

These areas will be asked to produce initial plans within eight months and final plans by the end of next year.

Local authorities will be able to bid for money from a new Clean Air Fund to support improvements which will reduce the need for restrictions on polluting vehicles. This could include changing road layouts, removing traffic lights and speed humps, or upgrading bus fleets, but the government has indicated that charging the worst polluting cars for road use is an option of last resort.

The government will also issue a consultation in the autumn to gather views on measures to support motorists, residents and businesses affected by local plans - such as retrofitting, subsidised car club memberships, exemptions from any vehicles restrictions, or a targeted scrappage scheme for car and van drivers.

Transport Secretary Chris Grayling said: ‘We are taking bold action and want nearly every car and van on UK roads to be zero emission by 2050 which is why we’ve committed to investing more than £600m in the development, manufacture and use of ultra-low emission vehicles by 2020.

‘Today we commit £100m towards new low emission buses and retrofitting older buses with cleaner engines.

‘We are also putting forward proposals for van drivers to have the right to use heavier vehicles if they are electric or gas-powered, making it easier for businesses to opt for cleaner commercial vehicles.’

The UK plan for tackling roadside nitrogen dioxide concentrations is here.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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