2 Are motorists overtaxed?|
Revenue from taxes and charges
on road users
18. In response to our simple question, "What
taxes and charges are currently paid to Government by road users
and how much do they raise?" various bodies cited very different
figures. For example:
- The Chartered Institute of
Logistics and Transport: £28 billion, comprising fuel duty
- HM Treasury: £32.8 billion, including £2.5
billion of company car tax;
- The Automobile Association: £46 billion,
including Value Added Tax (VAT) and business motoring taxes;
- The National Association Against Tolls: £50-57
billion, including taxes on oil companies and car repairs.
19. These differences result from differences
of opinion as to what should be included in the calculation. Some
count VAT, insurance premium tax and certain other general taxes
as 'road user' taxes. We show the amounts raised by these taxes
and charges and their broad transport impacts in Table 1.
Table 1: Principal taxes and charges paid by UK road users, and revenues raised
|Tax or Charge
||Revenue raised £billion per annum (gross)1
|Main transport impact
|Taxes and charges specific to road users
|Fuel duty ||24.9
||Reduce vehicle mileage and encourage fuel efficiency.
|Vehicle Excise Duty
||5.4 ||Encourage purchase of more fuel-efficient vehicles.
|Tolls (bridges, tunnels, M6 Toll, etc)
||Fund specific infrastructure and manage demand.
|London congestion charge
||Reduce traffic and congestion in central London; fund transport infrastructure and services.
|Total specific to road users
| || ||
|General taxes paid by road users
|VAT on fuel ||6.84
||Reduce mileage and encourage fuel efficiency.
|VAT on vehicle sales
||Reduce rate of new vehicle purchase.
|Insurance premium tax
||1.0 ||No specific transport impact.
|Company Car Tax and Fuel Benefit Charge6, 7
||Encourage purchase of more fuel-efficient vehicles.
|Total general taxes
|Total paid ||48.1
Notes and sources
|1. ||Figures rounded to nearest £0.1 billion. Main source is HM Treasury Ev 219
|2. ||Estimated by National Alliance Against TollsEv122
|3. ||TfL, Central London Congestion Charge: Sixth Annual Monitoring Report, July 2008, p220
|4. ||Figure provided by the RAC - Ev 172. According to HM Treasury (Ev219),"HMRC does not collect data on VAT in a way that allows for isolating road users".
|5. ||Figure provided by the RAC - EV 172.
|6. ||This is the element of Income Tax and National Insurance Contribution paid on the benefit in kind derived from the provision of company cars and company fuel.
|7. ||Figure is for 2005-06
20. Professor McKinnon and Ms Maja Piecyk of Heriot-Watt University
noted how academic studies vary in terms of their treatment of
In our study of the internalisation of HGV [heavy goods vehicle]
costs we included VAT on the grounds that it is passed down the
supply chain and ultimately borne by the final consumer. Some
other studies have excluded it arguing that only those taxes which
have a direct bearing on the vehicle operators, and are thus likely
to influence their behaviour, should be included.
21. Andrew Leicester of the Institute for Fiscal Studies,
on the other hand, argued that VAT on car purchases, servicing
etc. should be seen as a general consumption tax rather than a
specific tax on road users.
Professor Glaister, Director of the RAC Foundation, summed it
If you are trying to find a more efficient and fair way of charging
for a road network and for its expansion and maintenance then
you will of course look at the charges that people pay for the
use of the networkthings like fuel duty and vehicle excise
duty. If you are asking whether in some sense the total tax take
balances the total expenditure on roads and the associated facilities
then you may want to include other things like parking charges,
taxes on vehicle insurancea long list of other itemsand
perhaps VAT is another item that you would include in there, but
that is for debate.
22. Having considered the various perspectives, we think it
is important to draw a distinction between two groups of taxes,
which we show in Table 1 above:
- General taxes which anyone might pay on a wide range of income
and expenditure, such as VAT, income tax and insurance premium
tax. Some of these happen to fall on road users but they are not
specific to road users. These taxes raise revenue to fund general
- Taxes that are levied only on road users, notably
fuel duty and VED. These can be said to be motoring taxes and,
as discussed in Chapter 1, they may have specific purposes, such
as reducing carbon emissions.
Company car tax and fuel benefit charge are part
of general taxes as they are income tax on benefits in kind and
are not taxes specific to road users.
23. To the ordinary motorist, the difference
between a tax and a charge may not be apparent or seem important.
There are, however, some important differences between them regarding
public policy. Taxes are compulsory, unrequited payments, whereas
charges are paid in return for a service. The National Statistician,
Karen Dunnell, explains the international definitions and how
the Office of National Statistics classifies some existing "charges"
(see Box 1).
|Difference between taxes and charges
Government revenue is mainly divided into taxes or service charges. Taxes are compulsory unrequited payments, where unrequited means that the payer does not receive anything directly in return. Service payments are requited in that they include the delivery of a service in exchange for a payment. In some instances the classification of these receipts can be difficult to interpret and the international statistical manuals recognise that "the borderline between taxes and payments for services rendered is not always clear cut in practice". As a result ONS consider the nature of the receipts carefully before reaching a decision.
The London congestion charge and road/bridge toll charges are payments made for vehicles to use the roads within a defined zone. The charges are judged to be requited payments in line with international guidance and are therefore classified as payments for a service.
The LEZ [London Low Emissions Zonesee Section 4] and the London Borough of Richmond Upon Thames emissions based parking charge are classified as taxes. The LEZ charge is a compulsory payment for specific vehicles to drive within the LEZ. Although the vehicles gain access to roads within the LEZ, the charging policy relates to vehicles polluting the air within the zone rather than the use of the roads. The LEZ charge on the use of the non-compliant vehicle is judged to be unrequited and classified as a tax on pollution.
Similarly, the London Borough of Richmond upon Thames's charge for a permit to park in a Controlled Parking Zone, which was implemented on 2 April 2007, is based on the emissions of the vehicle concerned. The decision to classify the charge as a tax on pollution is similar to the LEZ: the charge relates to the vehicle emissions rather than the direct consumption of a service.
Letter from Karen Dunnell, National Statistician, Office of National Statistics, in response to a Written Question from Eric Pickles MP. Parliamentary Written Answers, 9 February 2009
24. The principal taxes and charges on road users
- Fuel duty;
- Vehicle Excise Duty;
- Tolls for bridges, tunnels and the M6 Toll, and
- London congestion charge.
25. In addition, there are parking charges paid
to local authorities. These fund parking services and manage demand.
The AA estimates that parking income from UK motorists totals
around £1 billion, half of which is from penalties for contraventions.
These were considered in our 2006 report Parking policy and
A recent study suggests that only a minority of local authorities
make any significant surplus on car parking.
26. In round terms, Table 1 shows that the Government
raises close to £50 billion from road users. About one third
of this is general taxation on consumption and incomeVAT,
Insurance Premium Tax, and Company Car Tax which are not specific
to road users. About £30 billion is raised through taxes
and charges specific to road users£25 billion fuel
duty, £5 billion VED and £0.5 billion (gross) from tolls
on certain bridges and tunnels, and the London congestion charge.
This is a large amount, both for the road users who pay it and
the Government which relies upon it. Yet the Government does not
present the figures in a comprehensive or accessible form. We
have had to compile them from a variety of the sources and witness
evidence. The information provided by the Government on this issue
was much more limited than that provided by other witnesses.
27. A sensible debate on the taxation of road
users requires that the public has easy access to sound and well-presented
data. The Government needs to publish explicit and comprehensive
information on the amounts of money it raises through taxes and
charges on road users.
28. A study by the Commission for Integrated
Transport found that, unlike some EU countries, the UK tax system
focuses on car use rather than car ownership, with British drivers
paying significantly more to use their cars rather than simply
paying to own them.
29. In terms of total taxation on both ownership
and use, British drivers are taxed at the European average and
pay, in relative terms, similar amounts to drivers in Finland,
Denmark, Ireland, Italy and France. However, in respect of car
ownership, British drivers pay average or below average
amounts of tax, depending on engine size; and in respect of car
use, British drivers are amongst the most highly taxed
30. Through our visit to the Netherlands and
Germany, we learned of the taxes and charges paid by drivers in
those countries. We compare them with UK tax rates in Table 2
Table 2: Motoring taxes and charges in the UK, the Netherlands and Germany in 20091
|Fuel tax (petrol) per litre
|Fuel tax (diesel) per litre
|Vehicle tax per annum
||£5.99-£24.27 per 100cc
||6.75-27.35 per 100cc
|Car sales tax ||Nil
|Motorway tolls ||M6 Toll only
|Insurance tax ||5%
Notes and sources:
1. Rates at February 2009 and rounded to the
nearest penny/cent. Converted at £1.00 to 1.127 - average
interbank exchange rate for February 2009.
2. HM Revenue & Customs.
3. ANWB Ev 224
4. BDI Ev 47
5. UK fuel duty increased to 54.19p per litre
on 1 April 2009
6. The UK top band for standard rate VED increased
to £405 for 2009-10
31. The UK has the highest rate of duty on diesel
in Europe but it has now dropped to ninth highest position for
duty on petrol. Some
other European countries, such as the Netherlands and Germany,
have increased their fuel duty rates; and the fall in the value
of Sterling against the Euro has narrowed the difference.
To some extent, the UK's high fuel duty is offset by lower taxes
and charges elsewhere. There are no motorway tolls in the UK (other
than the M6 Toll), unlike in France, Italy and some other European
countries; the 15% VAT rate is relatively low by EU standards;
and purchase taxes on new cars are high in some countries, such
as the Netherlands.
32. In the UK, the rate of duty for diesel and
petrol is the same. Diesel is more expensive than petrol due to
technical reasons and market forces.
The price differential does not arise from a tax differential.
Despite the higher price of diesel, there has been a significant
switch by purchasers in recent years to diesel engine cars, due
to their greater fuel efficiency and economy.
Declining cost of motoring
33. Taxes and charges are only part of the overall
cost of motoring. Although some motoring taxes have risen, the
overall cost of motoring has declined substantially over the past
20 years. RAC research has shown that:
] despite the perception, the cost of motoring
in real terms has fallen, even when rising fuel prices were taken
into account. In real terms, we found it is 18% cheaper to buy
and run a car (comprising service and repair costs, insurance,
road tax and breakdown cover), including fuel costs, in 2008 than
it was in 1988.
34. The implications of the Government's climate
change policies also need to be considered. The Government has
made clear its commitment to promoting vehicles with low or zero
CO2 emissions, including electric cars, which consume
less road fuel and are charged at lower rates of VED. These vehicles
will yield considerably less fuel duty, VAT and VED revenue than
the existing vehicle fleet. If levels of revenue are to be maintained,
alternative taxation and charging arrangements are likely to be
35. The British driver is sometimes portrayed
as uniquely highly-taxed. Yet, taken overall, the taxes and charges
paid by drivers in comparable European countries, such as the
Netherlands and Germany, are not so different to those in the
UK. We support the UK emphasis on car-use taxes, as opposed to
car-ownership taxes. It is more equitable that those who consume
more should pay more. Such taxes are more likely to incentivise
less fossil fuel consumption and therefore lower CO2
emissions. The fact that it is 18% cheaper to run a car now than
twenty years ago combined with increases in the real level of
bus and rail fares over the same period, makes it more difficult
to encourage modal shifts from cars to public transport. The basis
of Government policy should be to reverse these trends.
14 Ev 136 Back
Ev 219 Back
Ev 161 Back
Ev 210 Back
Q 3 Mr Leicester Back
Q 2 Professor Glaister Back
Ev 161 Back
Transport Committee, Seventh Report of Session 2005-06 Parking
Policy and Enforcement, HC 748, 22 June 2006 Back
Local Transport Today 514, "Parking not always a cash
cow", 27 February 2009, p 5 Back
Ev 219 Back
Commission for Integrated Transport, Factsheet No.2: European
Motoring Taxes Comparison, 2001 Back
EU Oil Bulletin in Petrol and Diesel Prices, Standard Note
SN/SG/4712, House of Commons Library, 12 March 2009. Back
In March 2009 the tourist exchange rate was approximately £1.00
for 1.07 Euros. Back
Mr Chris Hunt Q 231 Back
Ev 172 Back