July 28, 2021

United Kingdom government contemplates tax hikes to finance the switch to electric cars

According to a recent study from the Treasury, taxes will increase to cover the lack of fossil energy tax as electric cars are becoming more commonly used. Evaluating the UK’s steps in being a net-zero in the greenhouse gas emissions by the year 2050, the latest preliminary study addresses the costs for all core players involved with decarbonizing diverse businesses and sectors. In doing so, the analysis shines a light on how well the government could try to regain some of the lost revenue mostly during the mass transition to electric cars, causing a dramatic decrease in the fossil fuel taxes (petrol and diesel). Revenues from fossil fuel consumption taxes as well as from emissions-intensive sectors will fall through the transformation, for instance, as electric vehicles are replaced by petrol cars.

The federal administration will need to evaluate over time ways to compensate for these missed tax revenues, whether by changes to other taxes or decreases in government expenditure so that the United Kingdom can hit net zero while at the same time ensuring the lengthy health of public finances. Although not confirming any particular region that could be subject to a tax increase, this declaration serves as an acknowledgement of a major barrier to implementing EVs: that it would eliminate the UK government’s significant revenue stream. It has recently been proposed that a levy on energy primarily used to power electric cars may be imposed by the state, raising charging rates as a way of restoring the missed fuel duty.

For gas and diesel, fuel tax presently sits at 57.95 pence every liter, and forecasts say that converting en masse to cheaper electricity would bring the national economy around a £ 30 billion loss. The study also acknowledges the public’s barriers to the implementation of zero-emission vehicles (ZEVs): “There seems to be a more dynamic market failure where an absence of sufficient charging network may pose a barrier to the implementation of ZEVs, but the reality that enough ZEVs are necessary to be used to allow the charging station viable may prohibit the infrastructure from being delivered.

It is important to note that there is the availability of some static non-price market failures also present does present a barrier to these vehicles’ adoption: confusion about battery range as well as environmental impact; inertia; and constraints on up-front affordability. It is commonly accepted that Britain’s electric vehicle charging infrastructure is not ready for a sharp increase in the number of plug-in vehicles on the roads. The government vowed earlier this year to double its spending on road improvements before declaring that the selling of new petrol, as well as diesel-powered vehicles, would be prohibited from 2030 onwards.