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Podcast | How should the government tax electric cars?

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In 2030, motorists in the UK won't be able to buy fossil fuel powered vehicles from showrooms anymore. To incentivise a shift to an all-electric future, the government is giving considerable tax breaks to the owners of electric vehicles (EVs) to stimulate uptake.

However, as more and more people move away from fossil fuels, the government stands to lose billions of pounds in tax revenue - unless it decides to tax EVs.

In this episode, we speak to Stuart Adam, IFS tax expert and Steve Gooding, Director of the RAC Foundation to discuss how the government could tax EVs in future.

Zooming In: discussion questions >>>

Transcript >>>

Zooming In: discussion questions

Every week, we share a set of questions designed for A Level economics students to discuss, written by teacher Will Haines.

  1. What negative externalities from car travel will continue to exist even when the UK makes the full transition to electric cars?

  2. Motoring taxes make up around 4% of total government revenue. How is the government going to respond to the loss of revenue that will come from the shift to electric vehicles?

  3. If the UK government is seeking to tax electric car use in the medium to long term, how do they balance this alongside encouraging people to make the transition to electric cars?

Transcript

Paul Johnson

Hello, and welcome to this episode of the IFS Zooms in, I’m Paul Johnson, Director of the Institute of Fiscal Studies and today I’m really pleased to be joined by two people who are going to talk to us about the transition, or the expected transition from fossil fuel driven vehicles to electric cars, and what that might mean in particular for taxation and how we tax motoring.

First, I’m joined by Steve Gooding who is currently director of the RAC Foundation, I first knew Steve when he was a senior civil servant at the Department of Transport and indeed before he was director of the RAC Foundation, he was general director for roads and cars at the Department for Transport. I’m also joined by Stuart Adam who’s a senior economist here at the IFS and one of the countries and indeed the worlds experts on taxation.

So, as I said we’re going to talk about this transition from petrol and diesel cars to electric cars, and in particular what that’s going to mean for government revenues. So, let’s start, Steve, just by reminding ourselves what is the government’s plan here, what are its targets and objectives in terms of getting us into electric cars, and how is it doing?

Steve Gooding

So, the first thing to say is the governments got a couple of very clear deadline dates that its set out, 2030 and 2035, from which dates, in 2030 it will not be possible to register for sale a new fossil fuelled road vehicle, particular cars and vans that relates to, it’s going to take a bit longer for trucks and possibly for motorbikes. And there’s a five-year grace window for hybrid vehicles but not yet tightly defined which sorts of hybrids, to 2035. After which date, we will not have fossil fuelled vehicles in the show rooms for sale in this country. So, those are the two clear lines the government has set. And that’s in the context of the broader set of objectives that the government has set in its climate change strategy.

Paul Johnson

And that’s really quite soon, isn’t it, that’s seven and a half years’ time, we’ll only be able to buy electric and perhaps some hybrid cars. What fraction of current sales are electric?

Steve Gooding

Well, the proportion of current sales has been shooting up and electric cars have been really coming out of the sticks here, and I think heading beyond 10% and up to 20%. However, I think it’s also important to say that we have just been through two and a bit very extraordinary years, starting with Brexit then into COVID, then into the Ukrainian crisis, and so the number of new cars being produced, the number of new cars being registered is way down on what we would expect beforehand, and I don’t doubt we’ll come into this in a moment, the amount of driving that we’re doing and the amount of fuel that we’ve been consuming over that period is also down. So, we’ve seen a fall in the market, we don’t really know exactly what going on there, but one of the issues is that if you’re a fleet purchaser, and fleet purchases make up just over half off all the new registrations, you might be thinking, “lets hold on and see what new vehicles are coming through, particularly electric ones.” Because there’s an extremely favourable tax regime for company cars. If you’re a company car driver, it absolutely pays you to have a look at getting an electric vehicle, I know people who will happily tell me that they’ve got an electric car as their company vehicle, they drive to work, they charge it at work, they get home they’ve got more electricity in it than when they set out in the morning and it costs them nothing.

Paul Johnson

Sounds like a pretty good deal. So, if we’re getting towards 20% of new car sales being electric and that’s up from, roughly-speaking, diddly-squat from five years ago, what’s driving that? Is that tax incentives? Is it just people going green and making their own decisions? Is it manufactures really pushing these things?

Steve Gooding

I think it’s a mix of the two things you say, predominantly. So, first up the company car tax treatment makes going electric very favourable, also I think it’s fair to say that some companies focusing on their ESG reporting and looking at the E in ESG, where they’re providing company cars are quite keen to be providing those in a clean and environmentally sensitive and sustainable way, so they’d like their teams to be driving electric vehicles. We also see that in companies, and in the public sector, where there’s a tremendous appetite, for example, to have not just cars but vans, playing their part in cutting carbon emissions, and indeed dealing with our air quality problems. And the other end of the scale, yes there are a lot of people who like to show their green credentials, one of the things the government introduced was a little green stripe on your number plate to show you’ve gone electric. A little badge of honour. And I think certainly something I’ve noticed in perhaps the slightly wealthier parts of the country is you see rather more green stripes. Because as of today, although more and more electric cars are coming to market, the first wave, and the first models in each range tend to be quite expensive, we’ve been talking about the £40,000 plus range, and I don’t know about you, Paul, but that’s never been part of the market that I’ve been in. And a lot of us think that the real game changer will happen, if it happens, when the auto companies are able to produce the sub, certainly sub £30,00 and ideally hovering around £20,000 vehicles, the smaller ones if you like, the small family run arounds.

Paul Johnson

I’d be interested in your views about how that’s going, and I have to say around me and the sort of metropolitan elite land in North London there are quite a lot of Tesla’s around, my twenty odd year-old Golf is looking increasingly out of place. What’s your sense of the likelihood that we will meet this 2030 target to be no longer selling fossil fuel cars?

Steve Gooding

Well, it’s not a target, Paul, it’s the law. So, it’s not a case that companies might not be able to achieve it, it’s if the companies wish to sell cars, in this country, from those dates, they’ve got to comply with what’s allowed to be sold. Now, I think it’s also important to recognise that when were thinking about emissions and we’re thinking about the amount of fuel consumed and therefore the tax yield the government gets, it’s the whole car, as we call it the car park, the ARC, for reasons I’ll never understand, that we’re talking about so the new registrations are only a fraction of the total number of vehicles on the road. When we’re thinking about the total number of vehicles on the road, we’re thinking about your ancient Volkswagen Golf and my ancient Volkswagen Eos as well, and we’re asking ourselves, “I wonder how long you’re going to keep that vehicle going?” Because there’s also evidence that whilst fleet purchasers are being, perhaps pausing and going, “shall we go pure electric, what shall we do, what do our customers want?” Private individuals have been thinking maybe I’ll hang onto my car a bit longer than I would normally, perhaps I’m the sort to person who trades in for a new car every three years, well maybe I’ll stretch it to four, and just see what new vehicles are going to come through whether there’s a vehicle design that’s more appealing to me.

And then last up, we had all the crises I said, if you go into a car dealership, it’s quite hard to get a new car right now, bizarrely because of shortages of semi-conductors, wiring looms and some of the disruption to global trade that was caused by the pandemic in the first place, there are container ships all of the world out of place, this has been hugely disruptive to the delivery of a new vehicles to dealers, and people are looking sometimes at waiting lists of a year or more.

Paul Johnson

Wow, well that’s not something I’ll be intending to do terribly quickly. So hopefully that’s a relatively short, maybe a couple of year blip, but the overall picture you’re painting it, it seems to be an overall positive one of a fairly swift shift towards electric and away from petrol and diesel. But Stuart there some bad news here too, isn’t there? We raise rather a lot of revenue from taxing petrol and diesel, and if I was the chancellor, this would be fairly high on my medium-term worry list.

Stuart Adam

Yes, absolutely, the big ticket item here is duty, excise duty on petrol and diesel, which currently raises the government well expected £26 billion this year, that’s in principle due to the jump up to £30 billion next year, that’s because the chancellor has announced a 5p cut in fuel duties that’s supposed to be temporary, so next year that will supposedly disappear and on top of that, the assumption is that you’ll increase fuel duty in line with inflation, which hasn’t been done for the past ten years. So, I’m not sure that that jump in revenue is going to happen next year. But nevertheless, even the £26 billion which is due to get this year just from fuel duty, on top of that, there’s vehicle excise duty that people pay every year on their ownership of a car, and more in the year that the car’s new. And then there are other bits and pieces, in London there’s congestion charge and ultra-low emission zone, there’s all sorts of things with company car taxation and so on. And it’s worth bearing in mind that if were thinking about people switching to electric cars, there are outright tax breaks for electric cars at the moment, that if they continue means that the chancellor will lose even more revenue. So, if you charge your electric car at home, there’s a reduced rate of VAT on electricity, only 5% of VAT. Whereas on petrol and diesel, there’s 20% VAT and of course that’s 20% VAT on the price including the excise duty, that isn’t there for electric cars. And as Steve said, there are big benefits for electric cars in terms of the company car tax regime, also in terms of vehicle excise duty and so on. So, all in, there’s potentially about £40 billion of tax revenue, that on current policy, that the chancellor stands to lose. That’s about 4% of all government revenue. And now interestingly the governments recognised that its likely to lose that, it’s said it wants to carry on raising revenue for motoring, but it’s given us essentially no indication of how it wants to do that. It’s done nothing to prepare the ground for any new way of taxing motoring to make up for that lost revenue.

Paul Johnson

And Steve how quickly is this likely to happen? I mean whilst all new cars in 2030 will have to be electric as you said, the stock of petrol cars will continue for some period. So, assuming current policy this is a bit of sort of frog boiling, isn’t it? We’ll gradually lose this, we’re not going to lose it all overnight?

Steve Gooding

No, that absolutely right. So, we did some calculations in the RA foundation, widely informed from the public available sources, but we took our calculations around a manor of informed sources to test them out, and we applied an entirely arbitrary number, we said, “at what point do we think the chancellor is going to have lost £5 billion from cars consuming petrol and diesel?” So, cars make up about 60% percent of the total consumption of fuel, the rest is commercial vehicles, and it’s quite a range of possibilities, but broadly speaking that £5 billion looks like it’s going to have evaporated sometime between 2028 and 2032. So again, when you’re thinking about fiscal cycles, and indeed you’re thinking about model cycles in the automotive world, that’s sort of the day after tomorrow, it’s really quite soon now. What I don’t know, you know, we’ve just heard that in total, motoring taxes rise 4% of the total tax yield, but the taxing particular that’s vulnerable here is related to the consumption of fossil fuels, and we don’t know, we can’t be sure exactly how quickly that decline will come. There are other policy reasons that could well come along that might make it come sooner, in fact what we said from our report was, this is, if you like, almost a best case scenario from the treasury income perspective, everything else the government is likely to do to achieve its climate objectives, to promote cycling and walking and more active travel, to restrict motor traffic in our towns and cities to promote air quality. All of those things are likely to bring that date forward.

Paul Johnson

It feels to me, Stuart, like government’s arguably in a bit of bind here, I mean it wants to promote the use of electric vehicles in which case it doesn’t want to tax them terribly much, but equally it’s going to be very worried about losing the revenue that it’s getting at the moment. How can it balance that off?

Stuart Adam

I think that is the key question for the government, but I think in the long run it wants to be taxing electric vehicles, not least because you know even if they’re not emitting any greenhouse gasses from their exhaust pipes, they will still be causing congestion, causing accidents, causing damage to roads and so on, and we’ll still want to be doing things to discourage people from driving. So, you don’t just want to get the money completely elsewhere, just raise if from you know, income tax or VAT or corporation tax or whatever. On the other hand, in the short term, you want to be encouraging people to switch over to electric vehicles, and so there’s a genuine dilemma there that when and how do you start taxing electric cars? I think my own view on that would be that you want to start taxing them quickly, and that’s partly because anything new you do, anything like road pricing for example, is going to take time to prepare the ground for and implement, both technologically and politically. And partly because the more people have electric cars, and the more peoples got used to the idea that they won’t be taxed on these things, the harder it’s going to get to introduce tax on them. So, my view would be that the government should start as soon as it can to bring in whatever new taxes it wants to apply to electric vehicles, and instead do things to encourage the shift to electric cars that are inherently short-term one-off costs, not building in things that will last for the future. So, one example is that it could put more money into the electric charging infrastructure, more charging points in public spaces and so on. A second option, perhaps a few years down the line, would be that you can introduce scrappage schemes for old, dirty cars to encourage people to get rid of them and buy electric cars instead, so that’s something that would automatically disappear when there aren’t any more petrol and diesel cars out there. And so, you wouldn’t need to be taking away something that’s there at the moment. I think there are a few other things you can do along those lines, so my recipe would be, bring in whatever taxes you want to apply to electric cars, in the long run and then do things in the short term to encourage a shift over that will automatically disappear once that shift over to electric cars has happened.

Paul Johnson

Does that make sense to you, Steve?

Steve Gooding

It does make sense. And I think the government is on the horns of a dilemma here. But I want to take one step back first which is, I haven’t actually heard a clear government statement that they intend, in perpetuity, to continue to tax motoring. I think it is entirely open to the government to decide that turning motoring green, getting rid of tail-pipe emissions is part of the price of saving the planet, it could decide that, I’m not saying they will. People listening to this podcast are likely to be very familiar with the concept of external social marginal costs and all of the various externalities that Adam just listed. None of which are reflected in any actual calculation of taxes that motorists currently pay. And by the way cars do practically no damage whatsoever to the road surface, that’s entirely down to heavy axle-weight trucks. But let’s just assume for the purpose of this thought experiment the chancellor has called up his officials and said, “for goodness sake, £5 billion is going missing, something has to be done,” then I think they’ve got to work out if they’re going to carry on incentivising people to go electric, at what point are they going to have to say, you know, “it’s going to stop sometimes.” And this idea that the no-vehicle excise duty, no annual charge is going to end at some point. And what we would say is stick with it, I think a reasonably well-established premise in the world of taxation, which is you don’t do things retrospectively, you don’t say, “well we told you we weren’t going to tax this, but now we are.” So, if you look at the changes to vehicle excise duty over the years, if you and I, Paul, are paying the vehicle excise duty that related to the vehicles when it was registered, and the system has been through two or three overhauls since then, it will go through another one. And similarly, the rate of fuel duty has changed as Adam’s pointed out to us, it was, surprisingly to many, many people, cut by the chancellor the last time he looked at it. but I’d say that the important thing is for the government to be clear and say, “the deal is, at a date that we’re now going to tell you, from that date, new zero tail-pipe vehicles that don’t need fossil fuels, will be paying a charge and they’ll be protracting vehicle excise duty, but we are on average going to make sure that that charge and that vehicle excise duty is not going to be more than they would have to pay for an equivalent petrol/diesel vehicle.” Quite hard to prove on a detailed mathematical basis, but you can show those sort of things on average.

And second, what we’d say is, “go for a simple distance charge, I’m sure we’ll get onto all of the many permutations that road pricing can take in the fevered brains of transport economists. But fundamentally doing something as de-risked as possible, that works, is by far away the best way to go. I think, in my view, the best tax to introduce, the best levy to introduce, is one that is fundamentally boring. People don’t talk about it because it just happens, it just works, we’ve all got to pay it, we suck it up, but we trust that it’s accurately collected and what we need to do here is to think, if we only introduce the charge for the electric cars, don’t do what some people are saying, scrap fuel duty, why on earth would you scrap fuel duty? It absolutely accurately targets the one thing you want to get at, which is carbon, keep the fuel duty there for the existing vehicles, introduce some sort of milage charge for the new electric vehicles something, find a simple way of doing it, there are various ways you can do that.  

But of course, we've also got to remember, when we’re thinking about this bigger picture, all of that sounds fine and I recognise it, I suspect that the logic, if you’re just looking at the vehicles, the logic would be all of the political parties brace themselves to put what they’re going to do into their manifestos for the next election in order to be ready for 2028. But they’re also dealing with a couple of very big things here, which we know about. A big shock to household income, and inflation that’s happening at the moment, and cost inflation outstripping wage inflation. So, we’ve got a looming crisis there, and we’ve got an energy price crisis. So, one of the key cornerstones of promoting the electric car is how much cheaper it is to fuel than a fossil fuel vehicle. Many of us have seen our domestic energy bill rocketing up and Ofgem is cheerfully telling us that we ain’t seen nothing yet. So, you know there are other things moving here, and all of that has got to be captured and thought through. But at the end of the day, if the government is going to maintain its tax yield for motoring, motorists have got to pay it.

Paul Johnson

There’s an awful lot in that. So, you talked about a simple distance charge and that would in many ways replicate what we have with petrol and diesel duty, because that’s pretty closely related to the amount you actually drive the car. How would that actually work? I mean do you envisage something where there will be tax paid on the electricity that goes into the battery, or would you imagine some kind of thing in every car which measure literally how far you’re driving or some other way or collecting that tax?

Steve Gooding

Well the thing is, Paul, despite the fact that we’re both driving old cars, we’ve already got something in there that measures how far you’re driving, it’s called an odometer. Now it is possible to find characters who can do things to your odometer, particularly yours because they can probably stick a drill in the back and make it go backwards. But what I’m saying, what the foundation is saying is we’re only talking about electric vehicles registered after a certain date, lets call it 2028, to fit with the date when the money disappears. Well the electric vehicle of 2028 has a purely electronic dashboard, it’s a computer on wheels, it’s going to go back to the dealer for service, the dealer will be authorised to service it and read the milage, they company selling it to you is monitoring any number of electronic feeds of data from that vehicle, and will be able to know if someone’s tampering with it. So actually the most simple thing you can do I say there’s a millage charge, we’re going to say the average number of miles driven in a year is X, is we’re going to charge you Y which is a lump sum, an excise duty or it could be a monthly charge. And if it turns out at the end of the year we read your odometer, you’ve done fewer miles, you get a rebate, and if you’ve done more you get an invoice. That’s the very, very simplest. You can do that.

Paul Johnson

That won’t be very popular among those that get whacking great invoices at the end of the year.

Steve Gooding

But then you would offer options, and at the extreme end you would say, if for example you have a black box insurance policy which is monitoring how many miles you do in a month and what times of day you do your driving, and the insurance company is keeping track of that, well we could link to that. So instead of an estimate of how many miles you’re going to do, we could actually charge you each month with the number of miles you drive that month.

Paul Johnson

But you’d want that’s an option rather than a something that everyone hard to do, so say it was all on a pay as you go basis as it were?

Steve Gooding

Well, our guiding principle was to start with if you weren’t going to require drivers, or the auto companies to do anything different from what they already do, could you do it? And the answer to that is yes you could in the way I’ve just described. Could you do something more than that? Well, yes you can, each step of sophistication comes at a cost. And that cost might not be that great for the individual, hopefully, but let’s remember one of the other highly desirable features of fuel duty, from the chancellor’s perspective, is that it has the lowest cost of collection of practically any tax or levy ever devised because it’s actually levied at the refinery. There are very few actual payers of the duty to the chancellor and evasion rates are eye-wateringly low. So you also have in mind here that you could have a very sophisticated scheme, as I said, that tried to charge people per mile, or even shorter distances, and it could be linked to the time of day and the road they were on and all those sorts of things, but that comes at a cost and a complexity and we would say, “hold fire on that, if what you want is to maintain your 27 billion, the simplest way of doing it is what we’ve just said, and the simplest way of doing it almost certainly the best way of doing it.”

Paul Johnson

So, Stuart, Steve has outlined the cost of doing something more complex than a, you know the most straightforward way of charging according to number of miles driven, economists have traditionally been quite keen on a rather more complicated form of road pricing, which would vary it by time and place of driving, because there’s very different levels of congestion at different times and places. Without going into how much it would cost to achieve that, Stuart, perhaps you could just explain what is so attractive, at least in principle about road pricing of that kind.

Stuart Adam

Yeah, so what so’s attractive about it, is essentially that congestion is a very big problem. And a very big problem that drivers cause to other drivers. And in fact all of the kind of respectable estimates that I’ve seen whether that’s from governments or from academics, suggest that it’s by far the biggest damage that driving does. Much bigger even that the estimated costs in terms of greenhouse gas emissions. You know that’s not to say that greenhouse gas emissions aren’t a problem. But we just forget how much time as a nation we spend, we wait sitting in traffic jams, and that is a really valuable time, whether you would otherwise be you know doing something you enjoy or doing some more work. Now, the thing with that is that a tiny fraction of the journeys that people make account for an enormous fraction of the congestion. Most of the time that people are driving it’s not on particularly congested roads, it doesn’t cause great problems but particularly in cities in rush hours the congestion costs of driving are huge. And you know in London we’ve had a congestion charge that’s been reasonably successful, obviously it hasn’t got rid of congestion in London far from it. But the estimate we’ve got suggests it would be much worse in the absences of the congestion charge. In principle you could extend that to other places, and you could make it more sophisticated, so rather than just being, “have you entered this area on this day or not?” you could vary it in a more fine-grained way, by time and place. So, there’s clearly a trade-off there between how finely grained it is, how accurately we target, higher taxes on driving a particularly congested road at particularly congested times, versus how complicated it gets.  

And I completely take Steve’s point that you know the economists dream of ideal road pricing could get really very complicated, not least complicated for people to keep track of how much they would have to pay as well as any complications in administering it. But I think that the prize there is big. And one idea that I’ve heard suggested that I find quite appealing, is that you can possibly start simple and go down the route that Steve was suggesting of a simple distance based charge, initially, and Steve mentioned one way you can do that is just to read distance of the milo-meter, odometer, there are other ways you can do it, one is insurance companies already collect this ting, you can have self-declared milage and so on. Another way is to have a telematic black box in everyone’s car that keeps track of it. Now if you do it by having a black box in everyone’s car, that initially just collects distance, it would be rather easier then to shift from that to say well, “okay we’re now going to vary the tax, not just based on distance, but based on distance and place, or distance and time of day.” And then make it potentially as complicated as you want. Again, there may be practical limits to how far you really want to go down that route, but I think it’s worth considering, because as I say, I think having a road pricing system that does vary by time and place even in a relatively crude way, would be far, far better in terms of the benefits it brings, than having one that is just a distance-based charge.

Steve Gooding

Spoken like a true economist.

Paul Johnson

No higher praise.

Steve Gooding

I might not be an economist, Stuart, but I have to say when you say better, that’s in your opinion. And my experience, as Paul knows, 2004 to 2009 I lost several years of my life to exploring road pricing and one of the things that I left that particular job thinking was that time/distance road pricing will not happen in my lifetime, and not just because I ride a motorbike, I intend to live a good long while yet. But because it’s too clever by half, that the sophistication it implies is I think a faintly ludicrous. But also, and there’s a key thing for thinking about it now, back in 2000-2/3/4, in the political arena, road congestion was seen as a really, really big problem. I remember the secretary of state at the time saying, “we live on a small and crowded island, and doing nothing is not an option.” Well, we do live on a small island, it’s relatively crowded, and doing nothing turned out to be a perfectly good option for the last ten years.  

And my sense today and I have tried this out on a number of well-informed people, is that yes, post COVID traffic jams have come back in part of the country, but if you offer people road pricing as the cure, for the traffic jam, perhaps surprisingly they’d rather sit in a queue than have this rather complicated pricing system. But where I would be with Stuart is could we just solve one problem at a time, and this problem that we’re trying to solve right now is treasury revenue to pay for good things. And if we did that, and had something in that works, then I think we could all be openminded, that by the time we were satisfied that yet another government IT project hadn’t run into the sand or gone wrong but was actually something we’re all perfectly familiar with and it’s just works, that’s the time to think, “I wonder if we could make this a bit more sophisticated, I wonder if we could make it work a bit better for people and give them something, let’s face it, that they didn’t actually vote for.”

Paul Johnson

I think that, there’s a degree of agreement there I think, I think you can both agree to start with something simple, I think Stuart would do that with the very clear intention of going to something more sophisticated and you’d go into it, Steve with the sort of more, “yeah maybe, lets think about this in some considerable period of time but I’m actually reasonably happy with something not very sophisticated.”

Steve Gooding

Well, when we talk about something not very sophisticated, Stuart mentioned the London congestion charge, there’s nothing very sophisticated about that, that is a very sledgehammer, that is, “you want to come in here, pay! You just cross that line, there’s a line across the road and there’s a disk and red disk with the white C in it, you cross that, and I’ll have some money off you.” Very straight forward, everybody gets it, you know you’ve got to pay it. The problem that the mayor for London has got with that scheme, is they’ve pretty much worked out that they’ve whacked their charge up as high as they can, if they whack it up any higher, it’s not actually going to make much difference to the amount of traffic that’s coming into the very central area. Which is why the mayor for London has asked Transport for London to see what, and potentially what more sophisticated approach you could take to the Greater London area. And then the mayor has just expanded the ultra-low emissions zone from the original congestion charge zone, which is the very centre of London, out to the north and south circular, if he could do that. And there’s been relatively little push back, I think.

Paul Johnson

I mean that’s been surprising to me actually, I mean we need to finish in a moment, but it’s always stuck me that that ultra-low emissions zone, which must have forced a significant number of people to get rid of their perfectly good older diesels, I’ve not seen that as a big political issue. And given there’d be a number of people there, presumably to whom this was quite an issue from the financial point of view, have you picked up anything on that Steve? Are you surprised that it’s been so easy apparently?

Steve Gooding

Yes, I am surprised, I think that it links to something else though, which is the mayor for London and Greater London authority I guess with TFL, have been very clear, “London has an air-quality crisis, do you want your children to grow up with ill formed lungs? If so carry on driving your own diesel around, if not, tick this box.” So they’ve had a very clear crisis to be tackled, and here is a measure to tackle it, and if some people have got older diesels well I’m really sorry but they did set up, and again this is something Stuart mentioned, they did set up a scrappage scheme, where if you had one of those older cars you could do a deal with Transport For London and ger some money back for it and perhaps invest that in a slightly newer car, a petrol car that’s got better air-quality performance, or indeed a travel card. So, they went about it that way. The clarity, the purpose of why they were doing it, was absolutely black and white clear. A lesson I learnt back in the early noughties, was if road pricing is about raising money and tackling congestion, that was too complicated for many people, and I think the real immediate pressure is going to turn out to be the raising the money.

Paul Johnson

Well, I’m sure that’s how it feels sitting in the treasury at the moment and will continue to do so for a number of years. I think it’s probably time we drew this to a close and I think I take several things from this conversation. I mean one is that in terms of moving towards electric vehicles, we’ve got a bit of a hiatus at the moment because companies are finding it hard to make any kind of vehicles, but sales have taken off quite quickly and we will certainly make very good progress over the next decade or so. The big immediate challenge facing the government then is there’s a big loss in revenue but how quickly does it want to start taxing the driving of electric vehicles, whilst it’s trying to persuade people to go into them. And I think the answer has to be relatively soon, because as Stuart in particular has made clear, once people have something for free then starting to tax them later on is really hard. So, I think I would be wanting to push in that direction.

And then in terms of the opportunities this gives us in terms of road pricing and so on. Again, I think they’re, I think we’re all agreed we start off simple, you know Stuart would probably want to move slightly more quickly to something more complicated and economically efficient, whereas Steve is fairly clear about his scepticism about the feasibility of that. But at the moment it feels that we’re, for some period, the best we’re going to do is be in that second best world of taxing the distance that people drive in their new electric cars. At the moment, of course, the chancellors going to be much more worried about the immediate cost of living crises and I suspect this is not getting an enormous about of attention, as ever the urgent dries out the existentially long term important, but that’s in a sense what the treasury ought to be there for. And it’s certainly what we’re here for to try and make sure people are thinking about things that really matter in the long run as well as getting through the day.

So, thanks every so much to Steve Gooding from the RAC Foundation and Stuart Adam from the IFS, thank you all for listening to his edition of the IFS Zooms In. To find out more do visit www.ifs.org.uk and please consider donating to the IFS by heading to that website forward slash donate. You can find further information, again, in the episode description. Thank you and stay well.

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