IFS recommends making a switch from motoring taxes to road pricing

New report finds that motoring-related taxes are already shrinking as a proportion of total receipts

New Statesman
A motorist drives in heavy traffic on the M25 motorway in London. Credit: Getty Images.

In a new report funded by the RAC Foundation, the Institute for Fiscal Studies (IFS) recommends a move to a more sustainable way of road pricing from motoring taxes.

The institute writes:

Such a move would generate substantial economic efficiency gains from reduced congestion, reduce the tax levied on the majority of miles driven, leave many [particularly rural] motorists better off, and provide a stable long-term footing for motoring taxes without necessarily raising net additional revenue from drivers.

Existing motoring taxes, particularly taxes on vehicle fuel, are completely incapable of being deployed in a manner that effectively accounts for the costs of congestion, since they do not vary according to where and when people drive; however, where and when people drive is the key determinant of congestion costs.

According to the IFS, the main reason why governments should intervene in motoring decisions is that motoring generates external costs which lead to an inefficiently high private demand for road use. These external costs are overwhelmingly dominated by the costs of congestion.

In 2011-12, total receipts from the major motoring-related taxes are expected to be £38.3bn. The Department for Transport forecasts that road use will continue to grow as total road traffic in England predicted to be 43 per cent higher by 2035 than it was in 2003.

Motoring taxes are already shrinking as a proportion of total receipts, and are expected to amount to just 6 per cent of revenues by 2016-17.