As the shift to electric vehicles (EVs) accelerates across the UK, government tax revenues face a substantial blow in the coming years.
In a new report by the Climate Change Committee (CCC), Rachel Reeves, the Chancellor, has been warned that by 2030, there could be an £8 billion gap in Treasury tax receipts due to the decline in fuel duty revenue.
Electric Cars Driving the Shift in Revenue Loss
The move towards electric cars, driven by the UK’s climate goals, poses a major challenge for tax collection.
The CCC’s report points out that, if fuel duty rates remain unchanged, revenues from this source are projected to be a third lower by 2030.
The Government has already frozen fuel duties for 15 years, with Reeves continuing this trend during her first Budget in 2024
. But with the Government pushing for all new petrol and diesel cars to be banned by 2030, there is mounting pressure to replace the lost fuel duty revenue.
The Push for a Pay-Per-Mile Scheme
In response to these concerns, the CCC has suggested that a ‘pay-per-mile’ scheme could be the solution.
This would charge drivers based on how many miles they drive, regardless of the type of vehicle they own.
Countries like Iceland and New Zealand have already implemented similar schemes for electric vehicles.
The idea has gained traction as a potential method to bridge the growing tax gap, though it has also sparked debate among political leaders.
Rising Costs for Holidaymakers Amid Climate Push
The CCC’s report doesn’t stop at transport. It also forecasts rising costs for British holidaymakers as part of the broader push towards Net Zero emissions by 2050.
The committee is advocating for a 17% reduction in aviation emissions by 2050, which could make flights more expensive.
A round-trip to New York, for instance, could cost up to £300 more by mid-century as airlines invest in sustainable fuels and other decarbonization measures.
This shift could also affect popular destinations like Alicante, where return tickets could increase by £150.
Net Zero Targets Come with a High Price Tag
The UK’s ambitious Net Zero targets, aiming to cut greenhouse gas emissions by 100% by 2050, carry a hefty price tag.
According to the CCC, reaching these goals could cost up to £110 billion over the next 25 years.
However, the committee suggests that by 2040, the transition to renewable energy and low-carbon technologies will lead to cost savings, with households expected to save £700 annually on heating bills and another £700 on motoring costs.
The Public’s Role in Emissions Reduction
The CCC’s report also calls for significant lifestyle changes, including eating 25% less meat and reducing air travel, to meet carbon reduction targets.
A reduction in meat consumption could free up land for carbon-absorbing trees and reduce emissions from livestock production.
The committee has drawn parallels between the required changes and cutting down from eight doner kebabs a week to six, offering a more relatable perspective on the impact these decisions could have.
Renewables and the Shift Away from Fossil Fuels
To power this transition, the CCC has outlined a dramatic increase in renewable energy capacity.
Offshore wind power needs to increase six-fold by 2040, with a similar rise in onshore wind and solar power.
The shift away from oil and gas as energy sources is central to the UK’s goal of reducing its carbon footprint.
Criticism and Concerns Over Net Zero Plans
While the committee’s recommendations are aimed at fostering a cleaner and more sustainable economy, they have drawn criticism from various quarters.
Opponents argue that these policies could have damaging effects on the economy, especially when considering the global context.
Tory MPs have called for a more balanced approach that allows people to maintain their lifestyles—whether it’s flying or driving—without facing financial burdens.
Government’s Response to CCC’s Recommendations
The Government has yet to make definitive decisions on how to move forward with the CCC’s proposals.
Energy Secretary Ed Miliband stressed that while the committee’s advice is valuable, it remains independent of government policy.
He emphasized the Government’s goal of achieving energy security, creating jobs, and reducing bills through a clean energy transition, but acknowledged the need for careful planning to balance these ambitions with economic growth.
As the UK grapples with its climate goals, the ongoing debate over the best path forward remains a crucial issue for both the Government and the public.