In the first Tory budget for 19 years chancellor George Osborne has revealed the current emissions-based car tax will be scrapped to be replaced by a "road fund", partially paid for by a new vehicle excise duty. The new scheme will apply for new cars from 2017 onwards. Low CO2-emitting news cars will pay £140 a year (they currently pay £0); a large gas-guzzler that currently costs £490 each year to tax will also cost £140.
Osborne said "every penny" from the new VED will go into the new "road fund" – this is a resurrection of ring-fencing that has been hateful to the Treasury since the original Road Fund was scrapped in 1937.
The supposed non-payment of "road tax" has been a stick used to beat cyclists with since the early days of motoring despite the fact that since 1937 roads have been paid for by general and local taxation. Not that the chancellor seems to know this – in today's budget statement he said "Vehicle Excise Duty was used to fund our roads, but not anymore."
As most cyclists also own cars they already pay the existing vehicle excise duty but the new move from the Tories will give fuel to those people who argue that as cyclists (supposedly) don't pay for roads, they don't belong on roads.
Osborne's move is for England only. He said "We’ll engage with the Devolved Administrations on how the money is allocated there. And Treasury small-print revealed that the roads to be funded by the new Road Fund are major ones only, part of the Strategic Road Network, including motorways.
The ring-fencing of taxation – or, hypothecation – has been traditionally disliked by the Treasury because it's inflexible. Taxation is meant to be spent on everything, not set aside for certain purposes. Once taxation is set aside for one purpose special interest groups could start claiming *their* parts of the taxation take should be spent on them. To date, the only form of hypothecation allowed by the Treasury has been the TV licence, with funds ring-fenced for the BBC. (The Tory Government is trying to unravel this too.)
In 2012/13 vehicle excise duty raise £6bn. Expenditure on roads is about £9bn per year but this does not include the massive "negative externalities" of motoring, such as the costs of policing, pollution, congestion and road crashes. (Congestion alone is often estimated to cost £30bn a year.) The revenues raised by the new "road tax" will not not be enough to pay for road upkeep or road building and the shortfall will still be made up by general and local taxation, but those motorists who choose to claim that "cyclists don't pay for roads" have now been bolstered by Osborne's surprise move.
‘Road tax' was created in 1909, mortally wounded in 1926 by then Chancellor of the Exchequer Winston Churchill and no longer ring-fenced by 1937.
The Treasury was bitterly opposed to ring-fencing of motor taxation. A 1923 memo circulated to the Cabinet said: “It appears to the Treasury that the time has come when it is desirable to hold an enquiry to determine what should be the national policy in regard to the finance of road expenditure and motor car taxation…”
In the same memo, the Treasury heaped scorn on the principle behind the Road Fund, outlining the ludicrous situation the priniciple of ring-fencing extended to other sectors: “…e.g the taxes on drink, liquor, licences, etc., to bear the charges for police, prisons, and the administration of justice; the income tax the cost of defence; the death duties the debt charges and so forth – it is easy to imagine the confusion that would result…Some of the services charged on the funds would languish for insufficient funds, some would run riot with excessive sums at their disposal. In short before long the whole system would be reduced to chaos…”
In minute to his officials in November 1925, the then Chancellor Winston Churchill said:
“Entertainments may be taxed; public houses may be taxed; racehorses may be taxed … and the yield devoted to the general revenue. But motorists are to be privileged for all time to have the whole yield of the tax on motors devoted to roads. Obviously this is all nonsense … Such contentions are absurd, and constitute … an outrage upon the sovereignty of Parliament and upon common sense.”
By resurrecting "road tax" – and reducing the costs of owning large, polluting cars – Osborne is pandering to a Shires Tory audience. Such an audience would normally chime with the thoughts and beliefs of Winston Churchill but it's not very well known that he thought the "road fund" should be abolished to prevent a sense of "ownership" of the public highway by motorists.
The independent Office for Budget Responsibility said the changes to vehicle excise duty is a "tax increase" and will bring more money into the Treasury than the current scheme
"The VED reforms announced in the Budget will create a new tax structure for vehicles purchased from 2017-18 onwards. Cars purchased before April 2017 will still pay existing rates of VED. We expect the measure to boost receipts by £0.4 billion in 2017-18, and by up to £1.4 billion in 2020-21 as more new cars flow into the system."
Jason Torrance, policy director for Sustrans, said:
"Vehicle Excise Duty is a tax on pollution: those cars which create the most greenhouse gases are taxed most heavily. Siphoning that revenue into a new Roads Fund will inevitably lead to further pollution and undermines its original purpose.
"Over this parliament alone £15bn will be spent on new roads. Research proves that creating more road capacity will lead to increased demand, and therefore more miles driven.
“The Chancellor has kept the tax on fuel frozen at 57.95p a litre for more than four years, which is a populist policy but one which fails the public in that it serves only to lock them into having to use their cars.
“With physical inactivity, pollution and congestion increasing across the UK, investing in cycling and walking is an economic silver bullet and government must act across all departments to secure significant investment. Government must create a Cycling and Walking Investment Strategy that guarantees long-term funding for active travel.”
The chancellor also revealed that electric cars would not pay "road tax" – will owners of internal combustion engine cars shout “get off the road, you don’t pay for them” at electric car owners?