Labour has been urged to introduce new car taxes to help replace fuel duty revenue which is set to decline rapidly as more drivers switch to electric vehicles.
The urgency follows a report by the Climate Change Committee which revealed that fuel duty makes up nearly half (47 per cent) of all environmental tax income generated in the UK.
The report warned that without policy changes, the Government faces a significant funding gap as drivers switch to electric vehicles.
The committee explained that if fuel duty remains at its current rate, revenue will be about a third lower by 2030 compared to 2023 levels of £25billion.
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The Climate Committee report highlights the need for more taxes to be introduced to manage the shift to electric vehicles
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This decline threatens to create a substantial hole in the Treasury's finances, it stated, with it only getting worse as the shift towards electric vehicles accelerates across the UK.
By 2040, electric vehicles are expected to make up 80 per cent of cars and 74 per cent of vans on British roads, up from just 2.8 per cent and 1.4 per cent respectively in 2023.
This transition is being propelled by falling battery costs, with electric cars projected to reach price parity with petrol and diesel vehicles between 2026 and 2028.
After this point, EVs are estimated to become both cheaper to purchase and run, making them the clear choice for consumers, the Committee explained.
The need for more taxes comes as the Government's Zero Emission Vehicle mandate continues to push more drivers away from petrol and diesel cars.
Under the current plan, all new car sales will need to be electric by 2035, with at least 28 per cent being electric by the end of this year. In response to more cars moving to electric, the Climate Change Committee suggested that alternative environmental taxes could help fill the revenue gap left by declining fuel duty.
Carbon taxes are mentioned as one option to incentivise households and businesses to adopt low-carbon technologies. However, the Committee noted that if such taxes successfully shift behaviour, the revenue would not be sustainable in the long term.
Mike Hawes, Chief Executive of the Society of Motor Manufacturers and Traders, stated: "Take-up of zero-emission vehicles to the expected levels can only be stimulated if there are bold incentives to encourage demand, more affordable electricity, significant additional investment in infrastructure, and clear and consistent messaging that buying an electric vehicle is the right thing to do."
He added that the transition should "support industry, jobs and economic growth in the UK". The Climate Change Committee recommended making electricity cheaper by removing levies and policy costs from bills to encourage more drivers to not only switch but also charge their vehicles at home.
Improving public charging infrastructure is also crucial, with the network needing to grow from 54,000 public charge points in 2023 to around 300,000 by 2030.
Ken McMeikan, CEO of Moto, added that expanding the UK’s EV charging network is an "absolutely critical part of this transition".
Meanwhile, Vicky Edmonds, CEO of Electric Vehicle Association England, explained that the Government must "take stock of the considerable opportunity that lies in getting the transition to electrified road transport right".
She added: "This means ensuring EVs are affordable for all, and that the supporting infrastructure is affordable and accessible if we are to avoid leaving some drivers behind.
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Additional car taxes could help plug the revenue gap left over by the falling rate of fuel duty
GETTY"The report also confirms that common EV misinformation remains a barrier, with many drivers still doubting the environmental benefits of EVs despite them being four times more efficient than a typical petrol car."
She warned that Labour must tackle "prevailing EV myths head on" despite EVA England data finding that nine in 10 EV drivers wouldn't return to petrol or diesel having made the switch to electric.
