Memorandum by the Automobile Association
MODERNISING THE ROAD TAXATION SYSTEM
The UK's system of taxing and charging motorists
for the ownership and use of their cars is archaic and needs reform
in the light of the many initiatives now announced.
The Committee may want to question the Chancellor
and Treasury officials on reforming Britain's obsolete system
of motoring taxation and charges.
The Chancellor has deservedly earned
a reputation as a moderniserhis reform of the road fund
licence has moved this regressive tax to a progressive tax targeted
to enourage the purchase of more fuel-efficient cars. The AA worked
with Treasury to define the four VED bands that would achieve
popular support among motorists.
In the 1999 budget, the Chancellor
accepted in principle an element of fuel tax could be ring-fenced
for "additional" investment in roads separated from
the taxation to support general expenditure. The AA welcomed this
as a first step towards modernisation. Parliament has also agreed
that workplace charging and congestion charging proceeds should
be ring-fenced "additional" investment. Bridge/tunnel
and motorway tolls also flow directly to the infrastructure. However,
a rational series of funds cannot be established until the missing
element of the road tax and fuel tax that goes to support existing
levels of road expenditure is also separately identified. Only
then can "additional" be defined. The greater private
sector involvement the Government seeks will be helped by having
clearly established funds and income streams.
With this missing element identified,
both the charges to use roads and the tax for general expenditure
can be clearly displayed at the pump. The amounts motorists are
paying to use roads and the amounts that they are contributing
towards general public spending can then be transparent. Only
through modernisation and transparency can trust be restored in
a system that is now so discredited in the eyes of motorists.
The AA has researched what mix of
road tax and fuel tax reductions motorists would prefer. In the
past, a small majority has preferred to pay less road tax. Many
lower income motorists find six months road tax a difficult lump
sum payment to find in the family budget. With graduated VED,
it is possible also for the Chancellor to target reductions towards
smaller and medium sized vehicles. There are social, transport,
and environmental arguments pointing towards lowering the fixed
cost of motoring.
The review of taxation
Below is a concise summary of why the AA believes
that there are six main reasons why Britain's current motoring
taxation system needs urgent reform:
Trust Motorists have little trust in
it. Motorists were outraged in the last two years when then found
out how high taxation has become (fuel tax is 76-80 per cent of
a litre) and how little of the money they pay is now actually
spent on the roads (around 14 per cent). All this had happened
without open discussion and was possible because of the lack of
transparency in the system. The tax motorists are paying for fuel
is not even posted on petrol pumps.
Investment The Government has a new 10-year
transport plan. There is overwhelming popular support for investment
in transport. Delivering the investment needs explicit new funds
and income streams if modern ways of private finance are to work
efficiently, and the agencies and companies responsible are to
be made accountable for their performance. The Chancellor has
announced two national initiatives which are underdeveloped. First,
the "vignette" for motorway use by lorries. Second,
that a portion of fuel tax in principle could be ring fenced for
an investment fund.
Congestion and Workplace Charges The
Government has legislated to allow local authorities to levy a
"congestion charge" on motorists for driving in cities
and for parking at work. The idea implemented elsewhere in the
world is that charges are made only at busy places and times to
meter traffic, and then other taxes on motorists are reduced to
compensate. In Britain, the legislation says the extra money raised
can be kept and used for additional transport. But without separate
transport funds containing existing revenue, this is a pledge
that has little meaning eg additional to what? In London, it is
becoming clear that "congestion charges" are seen by
many as little more than rhetoric and a convenient tax to boost
an over-stretched general revenue account.
Motorway Tolling and Technology Britain's
first tolled motorway around Birmingham is coming to construction.
The Government has put legislation on the statute book to permit
motorway tolling. It is pursuing new internationally agreed standards
for electronic tolling systems that are likely to follow after
the vignette. Developments worldwide like the Birmingham Northern
Relief Road, the Versailles Tunnel in Paris, and pay lanes in
the US and Holland are pointing towards charges that change by
the time of day and are paid electronically. On the M25 at Dartford,
payments are accepted electronically, as they are on many toll
Environment Taxation, as with unleaded
petrol and ultra low sulphur fuel, can be used to help the environment.
The system of road tax and graduated VED is getting more complicated.
People need to see clearer, more consistent patterns of taxation.
Social and Rural Policy Leading economists
agree that there should be much higher charges on congested city
roads during busy times and that motorists pay far too much today
on uncongested rural roads. Social policy experts say the same
thing. People on low incomes need their cars outside cities yet
they pay more in motoring taxes and have little or no alternatives.
If there were real trust that changes would be revenue neutral,
the way we pay for motoring might be evolved to make the transport
system fairer and more efficient.
AA proposals for reforms
Revenue from motoring taxes should
be separated into a charge for the provision of road related
services and a tax for general government expenditure;
VED should reflect the environmental
performance of cars and Treasury should review whether the relative
safety of cars should also be reflected;
Where congestion charging is implemented
motorists affected should be given reductions in fuel tax or road
A series of motoring funds should
be developed as a mechanism for funding transport investment,
with motorists knowing who they pay to, what they are paying,
and what they are receiving back, in management, maintenance and