What does Road Tax Actually Pay For?

Benjamin Franklin once said “nothing is certain except death and taxes.” As much as we hate to be parted from our money, we need to pay our way onto the roads. There are times, though, where it feels like that money falls down a hole and never sees the light of day again.

We’re here to explain exactly where the taxes you pay on your car actually go, looking at what might happen to them in the future. The ins and outs of national finance can be complex, but we’ll seek to make it as palatable as possible.

Is it Even Road Tax?

For starters, we shouldn’t even be calling it road tax! Technically, it’s called Vehicle Excise Duty, but it’s colloquially known by drivers as road or car tax. It also bears remembering that it’s a tax paid on cars – not on the road itself. It’s been a legal requirement for cars for decades, seeing many changes to the amounts different cars pay.

In its most recent iteration, the amount paid is based on the volume of CO2 a car emits; the more that leaves a car’s exhaust (measured in grams per kilometre), the higher the price bracket. The average car emissions in 2019 was around 122g/km, which is within the £120-a-year bracket. This pricing structure encourages drivers to move to cleaner engines, with electric vehicles being in the lowest bracket and paying nothing and dirtier diesel engines paying the most.

So What Does It Pay For?

The simple answer is… everything.

As satisfying as it would be, road tax does not specifically pay for everything to do with the roads as cars. The funds are added to the central funds of the exchequer – the total budget the government spends every year. Education, health, police, local council budgets— anything you can think of. Part of that is indeed road upkeep and infrastructure initiatives, but the route between your payment and filling potholes isn’t as direct as most people thinks it is.

On a national level, the Department of Transport is allotted its own budget that pays for things like the upkeep of the motorway system and the laying of new roads. It funds research into new initiatives to increase road safety and congestion, like Smart Motorways and continued improvements to driving safety regulations.

It’s the local level where the money gets spent on road surface repairs on country and urban roads. Similarly, it also contributes to the building of new roads, but also larger urban projects that benefit drivers, like car parks and restructuring city roads. Of course, not every road user will agree on how a council should spend its limited budget!

What About the (Electric) Future?

With the 2030 ban on new petrol and diesel cars quickly approaching, more and more of us are purchasing hybrid and electric vehicles (in fact, around 28% of new cars in 2021 were electrified). As we mentioned, they pay zero road tax, but they also don’t pay any fuel duty; petrol and diesel are taxed at 20%, compared to 5% on electricity. The budget is going to lose two massive sources of revenue by the end of the decade, so what’s the long-term plan when it comes to taxation?

Whilst there a lot of unknowns, Benjamin Franklin’s prophecy will eventually come for EVs too – the lost income will have to be taxed from electric drivers somehow.

It’s a tight balancing act to walk: tax too much and you’ll disincentivise drivers to switch to greener vehicles, but too little and the books won’t be balanced. Increasing taxes elsewhere would be seen as unfair, but there’s one idea that’s gained traction amongst thinktanks.

Ministers have discussed the possibility of charging for the use of a car, instead of ownership of one. A driver could be taxed for the miles they travel in a year, something modern cars could track with smart technology. The proposition also included discounts for shared transport, like taxis and buses. Some long-haulers might bristle at a pay-per-mile scheme, but that may partly be the point. Some form of additional cost needs to be in place to encourage the public to use other modes of transport, controlling the number of cars on the road, preventing gridlock, and reduce overall emissions.

Of course, these plans could change or be completely dropped. It’s important for every driver that the correct taxation method’s found, to keep the quality of British roads high and to ensure those who make conscionable car choices are rewarded. Rushing into a decision could have long-lasting consequences.

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