Road Pricing

Key Facts and Statistics

• Road pricing generating the same revenue as current motoring taxes would be around £35 billion per year.
• Fuel duty revenue is predicted to peak at £30 billion in 2024-25.
• Fuel duty revenue is then predicted to fall by £5 billion by 2028-2033.
• EV use has increased by 71% since 2020.
• Road traffic is forecast to grow between 17%-51% by 2050.
• 60% of Brits believe there is a need to reform the current vehicle tax system.
• 49% of Brits believe that fuel duty is unfair.

What is Road Pricing?

Road pricing means charging motorists for using public roads. The main aims of road pricing schemes are managing traffic congestion, reducing environmental impact, and generating revenue. 

Charges can be applied based on factors like the distance travelled, the time of day, the type of vehicle, or specific road zones (e.g., city centres). The main types of road pricing are:

Congestion Charging

This charges vehicles for entering or driving within a designated area (usually city centres), at certain times. The goals are to reduce congestion and encourage alternative transport methods. The London Congestion Charge is one of the most well-known and successful examples of congestion charging.

• UK road users lose an average of 115 hours and £894 a year to congestion.
• American road users lose nearly 100 hours and $1400 per year to congestion.
• By 2040, the average driver will spend an extra 9 hours in traffic.
• The London Congestion Charge generated £122 million in net revenue in 2005/2006.
• London’s scheme achieved a cost efficiency of £78 million.

Toll Roads

Toll roads require users to pay a fee for access. The charge is usually applied to motorways, bridges, or tunnels to fund construction, maintenance, or as a method of traffic management. Fees can vary based on the vehicle type or distance travelled.

• The Dartford crossing generated £202.3 million in 2022.
• The Italian motorway network managed by Autostrade per L’Italia generated more than €3 billion in 2018.
• The Pennsylvania Turnpike is the most expensive toll road in the world, with a maximum cost of $131.40 (as of October 2024) for a normal passenger car.

Distance-Based Charging (Per-Mile or Per-Kilometre)

Drivers are charged based on the distance they travel, using GPS or other tracking technologies. This method can be applied across an entire road network or specific routes.

• The New Zealand Road Use Charge (RUC) charges road users for every 1000 km travelled, at a rate based on vehicle class and weight.
• In 2017/18, the RUC accounted for 42% of New Zealand’s NZD$3.8 billion (£1.8 billion) land transport funding.
• The majority of UK drivers (80%) drive less than 10,000 miles annually.

Low Emission Zones (LEZ)

These zones impose fees on vehicles that do not meet specific emissions standards, typically in urban areas. The aim is to improve air quality by discouraging the use of high-polluting vehicles. The London Ultra Low Emission Zone (ULEZ) is an example of this.

• The London ULEZ generated £115.8 million from charges between August 2023 and March 2024.
• Penalty charges for ULEZ generated £43.8 million in net income between October 2023 and March 2024.

Road Pricing in the United Kingdom

The UK government is exploring the viability of road pricing as a replacement to the current vehicle tax system. As of October 2024, there is no government policy for nationwide road pricing as a replacement for vehicle excise duty and fuel duty.

In December 2020, the government launched an inquiry called ‘Zero emission vehicles and road pricing’. The report highlighted the tax system, combined with the 2030 sales ban on new petrol and diesel cars, would reduce tax revenues obtained from motoring to zero over the next twenty years.

While EVs will now have to pay VED from 2025, losses from fuel duty could still leave a £28 billion hole in Treasury finances in the future.

The report’s main conclusion was that the UK government should start considering alternatives to the current road tax system. This means that a nationwide road pricing scheme could be implemented in the not-so-distant future.

Local authorities across the UK have introduced some form of road pricing, mostly in the form of congestion charges and low emission zones - such as the congestion charge and ULEZ in London:

Road Pricing in London - The London Congestion Charge and ULEZ

London Congestion Charge

The London Congestion Charge was introduced in 2003 to reduce traffic congestion in the city centre. It applies to vehicles driving in the designated Congestion Charge Zone (CCZ) during peak hours. The charge aims to reduce traffic, improve air quality, and encourage the use of public transport, cycling, and walking.

Key Details:

• Launch: 2003
• Charge: £15 per day
• Operating hours: Monday to Friday, 7:00 AM to 6:00 PM, and weekends, 12:00 PM to 6:00 PM (excluding Christmas Day)
• Exemptions: Electric vehicles, some disabled drivers, and residents within the zone are eligible for discounts or exemptions.
• Impact: A 15-20% reduction in traffic levels within the zone since its introduction.

Ultra Low Emission Zone (ULEZ)

The Ultra Low Emission Zone (ULEZ) was introduced in 2019 to tackle air pollution by charging vehicles that do not meet strict emissions standards. It originally covered central London but was expanded in August 2023 to cover all London boroughs. ULEZ operates 24 hours a day, 7 days a week, and applies to most vehicles, including cars, motorcycles, vans, and lorries. Vehicles that fail to meet the required emissions standards are charged to drive within the zone.

Key Details:

• Launch: 2019 (expanded to all London boroughs in 2023)
• Charge: £12.50 per day for cars, motorcycles, and vans.
• Operating hours: 24/7, 365 days a year
• Standards: Euro 4 for petrol vehicles, Euro 6 for diesel vehicles.
• Impact: Number of non-compliant vehicles dropped by around 60%.

How would road pricing work?

The main conclusions and recommendations included in the 2020 ‘Zero emissions vehicle and road pricing’ inquiry were that:

• An alternative to existing UK motoring taxes is needed to avoid either decreased Government spending or increased Government borrowing.
• If taxes are linked to road use, then road pricing based on telematics is the only viable alternative the Committee found.
• Any alternative mechanism should be revenue-neutral for the majority of drivers (i.e. they don’t pay any more than the current system).
• The number of local and devolved road pricing schemes currently in effect may make it impossible to deliver a national scheme.

Based on the report, pay-per-mile road pricing would be the most likely model the Government uses to deliver road pricing across the UK. A Campaign for Better Transport study suggested:

1. A flat per-mile charge for EVs only, keeping fuel duty and VED the same for ICE vehicles.

• Replacing fuel duty and VED for all vehicles with a set per-mile charge based on vehicle type and emissions but regardless of when and where one drives.
• Replacing current taxes with a ‘smart’ per-mile charge that changes based on vehicle type/emissions, location/type of road and time of day.

The Current UK Road Tax System

UK vehicle owners are currently subject to 2 main vehicular taxes - vehicle excise duty and fuel duty. 

Vehicle excise duty (VED) is an annual tax applied to cars driven or kept on public roads. Fully electric cars are currently exempt, but that will change from the 1st of April 2025. VED raised £7.4 billion in 2022/23 - this is predicted to rise to £9.4 billion by 2027/28. 

Revenue from VED is used to fund local and strategic road upgrades as part of the National Roads Fund.

Fuel duty is a tax levied on purchases of petrol, diesel and some other fuels. VAT is then applied after fuel duty, resulting in the total pump price for petrol and diesel.

Revenue from fuel duty is used by the Treasury to fund services - most of the income isn’t used on road maintenance.

• Vehicle excise duty generates around £7 billion per year.
• Fuel duty generates around £28 billion per year.
• In 1999, fuel duty accounted for 2.1% of GDP.
• Today, fuel duty is the equivalent of 0.9% of national income.
• Together, vehicle excise duty and fuel duty account for 1.5% of UK GDP (£35 billion).
• Highways England increased spending from £15 billion in 2015-2020 to £27 billion for 2020-2025.

The EV Impact on Fuel Duty

It currently costs between 10p-12p to charge and run an EV per mile in the UK. For ICE vehicles, that number rises to 19p-21p.

With electric car prices continuing to fall, combined with growth in the second hand market, EVs will, in the near future, become cheaper to own than ICE vehicles. Even though owners will pay VED from 2025, there is no EV equivalent for fuel duty, so revenue from that tax will fall as the EV market share increases.

The most popular argument for a pay-as-you-drive system is that EV drivers will pay tax like all other drivers, with 65% of respondents in one survey agreeing with the benefit.

Road Pricing Around the World

Electronic Road Pricing (ERP) in Singapore

Singapore’s Electronic Road Pricing (ERP) system, introduced in 1998, is one of the most recognisable examples of dynamic road pricing aimed at reducing traffic congestion. The system automatically charges vehicles for entering busy roads, using a combination of sensors and in-vehicle units to deduct charges based on the time of day, vehicle type, and congestion levels. The ERP has been highly effective in managing traffic flow in one of the most densely populated cities in the world.

Headline Statistics:

• The scheme launched in 1998.
• Traffic volume has stayed below 1975 levels since the introduction of ERP.
• Charge times are usually between 8:00 AM to 8:00 PM (varies by location).
• Average daily charges: S$0.50 to S$3.00 per entry
• 77 ERP gantries (as of 2014) spread across Singapore monitor the roads.
• Travellers using public transport increased from 59% in 2008 to 63% in 2012.

Stockholm Congestion Charge

The Stockholm Congestion Charge was introduced in 2007 following a successful trial and public referendum. The system charges vehicles entering and exiting central Stockholm during peak hours, aiming to reduce traffic, improve air quality, and promote public transport use. The charge has significantly decreased traffic congestion and emissions while boosting the use of alternative transport methods.

Headline Statistics:

• The pilot program (7 months in 2006) saw a 30-50% reduction in congestion.
• In the first decade after going live, the charge resulted in a 22% drop in the city’s traffic levels.
• Greenhouse emissions have also dropped 14%.
• Drivers are charged between 6:30 AM to 6:30 PM on weekdays.
• The cost per entry is between 11 to 45 KR (£0.81 to £3.32) depending on the season and time of day.
• The charge generates 1.3 billion KR (£95.9 million) annually.

High-Occupancy Toll (HOT) Lanes in the US

High-Occupancy Toll (HOT) lanes are special lanes available to drivers in the US who pay a fee to bypass traffic congestion, or for vehicles with multiple occupants to travel for free. The tolls are dynamically priced based on real-time traffic conditions, with the aim of managing demand and maintaining free-flow traffic on high-volume highways. These lanes are common in major cities, such as Los Angeles, Miami, and Washington, D.C.

Headline Statistics:

• The first HOT was implemented in 1995, in Orange County, California.
• Over 10 states use HOTs, including California, Texas, and Virginia.
• Typical fees range from $0.25 to $1.40 per mile (varies by traffic conditions).
• The LA ExpressLane program generated $63 million in tolls in 2018.

Road Pricing FAQ

Will road pricing replace fuel duty?
It’s possible that road pricing could replace fuel duty as electric vehicles become more common, to maintain revenue for road infrastructure, but no official decision has been made yet.

How does road pricing affect electric vehicles?
Electric vehicles could be subject to road pricing in the future, as they don’t pay fuel duty, ensuring that all road users contribute to the upkeep of roads.

What is the most expensive road tax in the UK?
The most expensive vehicle tax in the UK is for cars that cost over £40,000, which attract an additional charge (called the ‘expensive car supplement’) from the 2nd to 6th year of registration on top of standard Vehicle Excise Duty (VED).

How much is road pricing in the UK?
Road pricing varies depending on the scheme, such as the London Congestion Charge (£15 per day) or toll roads like the Dartford Crossing, which charges £2.50 per crossing for cars.

What is pay per mile road pricing?
Pay per mile road pricing charges drivers based on the distance they travel, using GPS or tracking technology, and is being considered as an alternative to fuel duty.

Will drivers pay more due to road pricing?
It’s probable that a nationwide road pricing scheme would ensure that the average driver wouldn’t pay any more than under the current UK road tax system. Drivers that use the roads more would pay more, while less frequent road users would pay less.