Scrap fuel duty in favour of track-and-charge system, think tank urges

Motorists would have trackers installed in their cars
Motorists would have trackers installed in their cars
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Tax on petrol and diesel should be scrapped and drivers should instead be charged on a pay-as-you-drive model, according to economists.

The Institute for Fiscal Studies (IFS) has published a report suggesting the Government should look to introduce huge reforms to fuel duty by scrapping it in favour of taxes on where and how far motorists travel.

The research group suggested the UK follow a track-and-charge scheme whereby motorists would have trackers installed in their cars and would be docked money when reaching certain checkpoints.

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Entering an area of heavy congestion - such as a city centre - could see the rate increase, the report said, in a bid to counter traffic jams.

The amount raised through taxes at the pumps has plummeted in recent years, with Treasury coffers down by £19 billion in the past two decades - equal to 1% of national income.

A further 2p cut, that the IFS suggested Prime Minister Boris Johnson had "mooted", would trim a further £1 billion off fuel tax takings.

Rebekah Stroud, co-author of the report, said the Government should "set out its long-term plan for taxing driving" with the transition to electric cars set to hit the public purse further.

"Cuts to fuel duties over the last two decades have contributed towards revenues' being £19 billion a year lower than they would have been," said the research economist.

"Another 2p cut, as reportedly mooted by the Prime Minister, would cost a further £1 billion a year.

"The bigger challenge is that revenues are now set to disappear entirely over coming decades as we transition to electric cars.

"The Government should set out its long-term plan for taxing driving, before it finds itself with virtually no revenues from driving and no way to correct for the costs - most importantly congestion - that driving imposes on others."

The IFS said Britain could follow a scheme already existing in Singapore since 1998 where a tracker is installed in cars and then monitored by check points so motorists can be charged for the distance travelled.

"The technology used there is relatively simple," said the report. "Vehicles are required to contain an 'in-vehicle unit' which can be detected by radio frequency identification (RFID) when they pass under gantries that are located along the most congested routes, along with a pre-paid card from which payment is deducted," said the report.

"Predetermined fees vary by route and time of travel and cars are charged each time they pass under a gantry. The charges range from zero to the equivalent of £3.50 and are frequently reviewed and updated."

The report describes the London congestion zone as another way of taxing drivers in busy areas, but labelled it a "blunt instrument".

It said a better system could be seen in Stockholm, which charges based on zones and the time drivers enter.

"The charges depend on the time of day, ranging from no charge (between 6.30pm and 6.30am) to around £2.90. The maximum daily charge is capped at £8.70.

"Oslo, Bergen and Gothenburg have also implemented systems where the price drivers pay depends on where and when they are driving, and Jakarta is planning on introducing a similar scheme next year," the report added.