Autumn Budget 2024: What motorists can expect
Fri, 18 Oct 2024
The government will present its first Autumn Budget on Wednesday 30 October, which industry watchers are anticipating with trepidation.
Given the government’s claims of a ‘black hole’, the Budget is expected to be costly for some as ministers look to raise cash.
But will motorists bear the brunt? Here, we’re going to look at what drivers can expect when it comes to fuel prices, VAT on EVs and – dare we say it – road pricing.
Fuel Duty
What appears an increasing inevitability is the ending of the 5p a litre fuel duty discount, introduced by former PM Rishi Sunak in 2022. There are estimates the government would raise £6bn if it was removed.
Last month, the RAC said the Chancellor ‘may as well raise fuel duty’ as filling stations weren’t passing on the discount to motorists anyway.
The Campaign for Better Transport is going even further, and wants the government to also reinstate the annual inflation-linked rise in fuel duty, which would raise an additional £1.6bn a year.
“All planned increases in fuel duty in line with RPI have been cancelled since 2011… this has brought real-term cuts for motorists for 13 years and cost the Treasury £133bn.”
The AA, however, believes the fuel duty freeze should continue, in order to protect the UK economy. “Scrapping the 5p freeze in fuel duty would hurt everyone, not just drivers,” said AA president Edmund King.
“We don’t deny there are tough choices for the Chancellor to make in October, but hiking fuel duty could backfire on working people and fuel inflation.”
We shall find out on October 30th which side Rachel Reeves is on.
Road pricing
Road pricing is another surprising discussion point ahead of the next budge. It would be focused on electric cars, as they don’t currently pay any fuel duty, with PwC suggesting a pay-per-mile road pricing scheme would cover the £9bn ‘black hole’ caused by the loss of fuel tax revenues by 2030 (when 1 in 4 cars on the road are predicted to be electric).
The RAC puts the hit to fuel duty at £5bn – but believes that pay-per-mile road pricing should apply to all vehicles.
Simon Williams, head of policy at RAC, said: “A pay-per-mile system could be set up according to vehicles’ emissions, with EV drivers paying the least to further encourage take-up, and ‘gas guzzlers’ paying the most.”
It’s been such a hot topic, the RAC also had to clarify an “inaccurate media report which implied we were suggesting an additional tax on drivers… we don’t want to see any additional taxation of drivers.”
How could it work? The Campaign for Better Transport suggest a simple pay-per-mile tax on EVs in lieu of fuel duty. It calculates a 2p per km charge would raise £815m in the first year, with revenue growing as EV uptake increases.
This, it adds, would be based on distance only, so would not require vehicle tracking. It seems to suggest a self-reporting-style system, where motorists input their mileage into an app each month. A similar system is already in place in Iceland.
Forms of road pricing are also used in New Zealand, Switzerland, Austria, Russia and the Czech Republic.
Such a system would without doubt prove controversial.
Car tax
It has already been confirmed that electric cars will lose their beneficial VED road tax status from April 2025. Instead of being free, they will have to pay £10 in the first year, and £190 thereafter.
Those are today’s rates and it is entirely possible the Chancellor will raise VED road tax rates in the October Budget.
It has also long been known that electric cars will be liable for the ‘Expensive Car Supplement’ for vehicles over £40,000 from April 2025. This is currently £410 a year, and has to be paid for five years. Might the Chancellor also raise this, compounding the road tax hit on electric car drivers?
EV VAT cut
The Society of Motor Manufacturers and Traders has been calling for VAT to be halved on new EVs since the beginning of the year. It renewed its call earlier this month.
It argues a temporary cut in VAT to 10% on EVs would make them more affordable for private buyers and put an extra 270,00 electric cars onto UK roads.
While sales of EVs are growing in the UK, they are mainly to company car drivers, who enjoy beneficial Benefit-in-Kind taxation rates. There are no such incentives for private buyers, who are also deterred by the high prices of electric cars.
The SMMT says just 1 in 11 private buyers choose an electric car.
The trade body adds it would give consumers an extra £7.7bn in BEV buying power, while reducing the Treasury tax take by just 22% per vehicle.
Halving VAT to 10% on a £40k EV would save private car buyers around £3500.
Whether the Chancellor thinks the same remains to be seen – but pressure to boost EV sales is increasing all the time now the ZEV Mandate is underway.
Does the premium car tax £40,000 rate include options?
