What is a pay-per-mile model? And how might the maths work out?

What is a pay-per-mile model?

It’s a new way of paying for the privilege of driving. It's also known as 'road pricing'.

Currently (barring a handful of exemptions including contentious ones on electric vehicles), every car on the road is currently subject to vehicle excise duty (VED), more commonly known as ‘road tax’. Couple it with the tax we also pay on fuel and the Treasury has got itself a tidy sum for maintaining the roads and other such stuff.

Road maintenance? Don’t make me laugh. How much does it make?

According to the Office of Budget Responsibility (aka the OBR), VED raised £7.3 billion in 2022-23. Since electric vehicles are going to start paying from 1 April 2025, the boffins at the OBR have forecast a billion-pound climb to £8.3 billion for the year 2024-25.

That’s a lot of money...it would fill *a lot* of potholes.

Yes, it would. It equates to about £290 per household on average, but of course, not every household has a driver. What’s more, there’s fuel duty. That ridiculously disproportionate amount of tax on our pennies spent at the pump amounts to about 53p per litre (ouch) and averages out at an eye-watering £850 per UK household.

Holy moly! So if I have one car in my household, I’m giving the Treasury £1,140 every year?

It gets worse, actually. You’re charged 20 per cent VAT after fuel duty has been added, so you essentially pay tax on tax.

But of course.

Remember though, these are only averages. If you drive more or you have a more powerful car, you’ll naturally spend more on fuel and/or road tax. Naturally, there are concerns that as more drivers switch to electric and fewer drivers pay for fuel, there will be an increasingly larger hole in the nation's coffers as the revenue diminishes.

Ok, how will a pay-per-mile model work as an alternative?

Frankly, we don't yet know. There are rumours flying around that the Government will introduce a pay-per-mile model in the next Budget (30 October), but nothing’s been confirmed. Though there are no details on how such a model might be implemented, there are other countries in the world that have been running such road pricing schemes.

Tell me more.

In New Zealand, drivers pay road user charges (RUC). It's structured as a fixed price-per-1000km-driven and there are different rates for different vehicle types. For example, a regular passenger car pays $76/1000km (£36), whereas a plug-in petrol car only pays $38/1000km (£18). Your typical artic lorry costs $389/1000km (£184).

Could we adopt a similar model?

It's certainly possible. Some drivers would welcome such a move. The average annual mileage of a UK driver is 7,000, meaning the average driver of a petrol car would pay £252 to use the roads. Drive a hybrid? You’d pay only £126 – definitely better for your pocket than the current system.

There would be winners and losers with such a radical change to the status quo though. Run a fleet of newer HGVs? The Treasury might sting you for almost twenty grand a year – more if the fleet is older (ouch). That’s a steep climb from the approximate £1,300 per truck per year such operatives currently pay.

Oof, I need my supplies. Are there any other alternatives?

Singapore uses electronic road pricing (ERP), where gantries are fitted with sensors and cars have electronic passes to pay as they drive. It's not that different from the Dart Charge, or some of the toll roads on the continent, but it's been deployed at a much greater intensity. That could be the other way of replacing the revenue.

What are the downsides?

If ERP isn't applied to every road, then traffic will re-route to the cheaper roads, which will become more congested. Surely congestion negates the whole point of the exercise.

Anything else I should know?

Silviya Barrett, part of 'Campaign for Better Transport' which has calculated a £5 billion fuel duty loss if no alternative approach is taken, has said: “The new Chancellor faces a looming black hole. She can avoid it, in a way which is fair, and which garners broad public support. But she should start now, as this issue will only get more pressing.”

That particular group wants pay-per-mile to only apply to electric vehicles. Meanwhile, Simon Williams, RAC head of policy, has said: "Our research suggests drivers broadly support the principle of ‘the more you drive, the more tax you should pay’. Whatever any new taxation system looks like, the most important thing is that it’s simple and fair to drivers of both conventional and electric vehicles.

"A pay-per-mile system could be set up according to vehicles’ emissions with EV drivers paying the least to further encourage take-up and ‘gas guzzlers’ paying the most. We’re not in favour of charging different amounts per mile based on the type of road driven on."

It's thought a pay-per-mile model could reduce the amount of congestion and make public buses quicker and more appealing, too.