There are growing discussions around whether Labour should impose a ‘pay-per-mile’ scheme on British drivers after the RAC described such a scheme as ‘the way forward’.

‘Pay-per-mile’ schemes (also known as ‘road pricing’) have been discussed due to an increasing shortfall in fuel duty due to the adoption of electric vehicles. Duties levied on petrol, diesel and other fuels currently generate around £25 billion a year in revenue for the Treasury.

‘Road pricing’ or ‘pay-per-mile’ has been successfully used in countries such as Singapore for decades, and New Zealand has a system where some vehicles pay for road miles in advance in units of 1,000km, with similar systems being trialed in Europe for goods vehicles.

However, previous governments have shunned the idea of introducing such a scheme in the UK.

By 2030, the government could lose £9 billion of fuel tax revenue thanks to electric vehicles, according to accounting firm PwC. A 5p per litre cut in fuel duty was introduced by the Conservative government in March 2022. Before this, fuel level had been frozen at 57.95p since March 2011.

What is a ‘pay-per-mile scheme’?

A ‘pay-per-mile’ scheme sees road users paying a charge based on how far they travel in a given time period.

With Chancellor Rachel Reeves facing a budget ‘black hole’, it’s been suggested that a ‘pay-per-mile’ scheme could help balance the government’s books.

How would it work?

‘Pay-per-mile’ schemes work using either cordons on specific roads, in-car GPS or odometers, or satellite monitoring, with road users often paying in advance.

In ‘pay-per-mile’ schemes in Singapore, users pay more to use roads at peak hours.

The RAC’s head of policy Simon Williams has called for fuel duty to be replaced entirely by a pay-per-mile system.

Such a system would see drivers of zero emission vehicles (ZEVs), such as electric cars, being charged based on how far they travel.

Think tank The Resolution Foundation has previously suggested that a figure of 6p per mile was likely, with drivers who cover 10,000 miles per year paying up to £600.

What are the pros?

The pros of a ‘pay-per-mile’ system would be to level the playing field between the drivers of petrol- and diesel-powered cars and electric cars, and compensate for the expected fall in fuel duty.

Supporters believe a taxation change is inevitable as electric vehicles are adopted more widely, and believe that ‘pay-per-mile’ is the fairest option.

The RAC has also suggested that adopting a pay-per-mile system across both electric vehicles and petrol- and diesel-powered vehicles could mean retailers charge drivers more fairly for petrol and diesel.

RAC head of policy Simon Williams said “We’d normally be against any increase in duty, but we’ve long been saying drivers haven’t been benefiting from the current discount due to much higher-than-average retailer margins.

“As more and more electric vehicles come on to the roads, the government will need to tax drivers differently.

“We think replacing fuel duty with a pay-per-mile system as soon as possible is the way forward as then the only tax levied on fuel would be VAT. This would give retailers nowhere to hide.”

The RAC said retailers’ margins – the difference between what they pay for fuel and the pump price – were 10p per litre for both fuels last week, compared with the long-term average of 8p per litre.

The Confederation of Passenger Transport, which represents bus and coach operators, said pay-as-you-go vehicle taxation could “help curb congestion”, making public transport “more attractive”.

What are the cons?

Any road pricing scheme would hit people in rural areas or who are reliant on their cars more than other road users.

Other campaigning groups have claimed that pay-per-mile will be expensive, and comes with privacy concerns over how drivers are tracked.

It’s also been suggested that such measures are ‘regressive’, targeting people on lower incomes the most.

The Alliance of British Drivers spokesperson Ian Taylor said, “We still do not like the principle of road pricing.”

“It’s regressive taxation, plus the means of implementation doesn’t come cheap and will involve tracking people’s movements all the time which comes with its own privacy concerns.”