The increased sales of eco-friendly cars have caused a gap of £13billion in the Treasury coffers, which could imply a 50% fuel duty increase in the near future.
The report made by the Institute for Fiscal Studies for the RAC Foundation shows that the increased use of electric vehicles and fuel-efficient cars has caused a gap in public finances. If the fuel duty collected by the Exchequer stands at 1.7% of gross domestic product, the number is expected to fall to 1.1% of GDP by 2029, which will cause a big shortfall in the Treasury coffers.
‘As drivers endure record prices at the pumps they might be surprised to learn that future governments face a drought in motoring tax income. The Treasury has already announced a review of VED bands to ensure drivers make a fair contribution to the public finances even as cars become more fuel-efficient,’ RAC Foundation director Professor Stephen Glaister said.
Paul Johnson also added that motoring taxation doesn’t show the costs drivers impose on others and that revenue from petrol was expected to fall. He also said that the solution to both problems will be a national system to charge mileage and congestion, replacing the present system of fuel taxation.