Fuel duty is a road to nowhere – it’s time for a pay-as-you-drive tax

Wait, what? That was my reaction (except it wasn’t quite so polite) upon seeing that the RAC was suggesting that chancellor Rachel Reeves should get rid of the Tories’ 5p fuel duty cut.

A motoring organisation calling for higher fuel duty? Isn’t that a bit like the maker of Haribos going into bat for sugar taxes or McDonald’s calling for a burger levy?

However, if you read what RAC head of policy Simon Roberts said, it starts to make some sort of sense.

First, let’s look at the numbers. That 5p discount is taking £2bn a year out of the Treasury’s threadbare coffers, which, if you believe Reeves, have been left with more moths in them than money.

Reeves, says Roberts, “also knows drivers were overcharged by a staggering £1.6bn last year, according to the Competition & Markets Authority’s recent report”.

What that tells you is that the 5p cut, designed by Jeremy Hunt to court (or rather bribe) motorists, hasn’t actually benefitted them much. Rather, it’s fattened the already overstuffed wallets of fuel companies and probably juiced their executives’ bonuses to boot. This wasn’t a people’s tax cut, or anything like it. It was an extra portion of M&S double thick cream for fatcats.

I’d go further than Roberts and scrap the supposedly temporary fuel duty freeze and start increasing fuel duty by inflation in line with other such levies. If the principle is “polluter pays”, doesn’t that make sense?

But wait, Roberts, whom I think deserves some credit for being forward-thinking and bold at a time when the mob is apt to come for anyone breaking out from a soggy orthodox consensus, isn’t done.

“We think replacing fuel duty with a pay-per-mile system as soon as possible is the way forward, as then the only tax levied on fuel would be VAT. This would give retailers nowhere to hide.”

The squealing when people start talking about road pricing is so loud it could easily result in a mass outbreak of tinnitus. But at a time when petrol driven cars are being steadily replaced by electric vehicles, it may be inevitable. The transport infrastructure – roads, bridges, signs and what have you – all has to be paid for. If people aren’t paying fuel duty because they’re no longer using petrol, something has to replace it as a source of funding.

Of course, what this would do is turn all roads into toll roads. Tolls are not popular in Britain, partly (I think) because of the habit of setting them at overly high levels. Using the M6 toll road will get you to your destination far faster than opting for the traffic-snarled alternative route. But the price tops out at a tenner for a simple car, which is quite steep, especially for regular users. It’s some time since I last used it, but it was all but empty when I did, which tells its own story.

Regardless, this is an idea worthy of debate, especially if Roberts is right and it does help to expose sharp practice on the forecourt. But it isn’t going to happen overnight. In the meantime, Reeves should certainly face down what will probably prove to be a noisy band of critics on the subject of fuel duty. To borrow a phrase of Keir Starmer’s, motorists have relatively broad shoulders. If you can afford a car, you’re probably doing OK.

So, given the parlous state of the public finances, fuel duty needs to rise. Sorry. But there it is. If and when it does, and if we’re going to seriously go down the route of road charging in future, one thing I would add to the mix that I suspect Roberts would support.

Reeves and Starmer have become rather too fond of indulging in grim rhetoric of late. I get the strategy of “under-promise, over-deliver”. That’s what smart CEOs do. Trouble is, the way they’re going they’re going to put off investors and have consumers hiding under their beds, which will damage a shaky economy that they desperately need to grow. They need to serve up a spoonful of sugar. Maybe two or three.

That sugar should extend to the motorist. If you’re asking them to pay more, more funds for fixing those maddening potholes would help to soften the blow. How about a reduction in petty fines for inadvertently entering a box junction, while we’re at it – and a rethink on letting local authorities go mad with all those low-traffic neighbourhoods that literally no one other than council bureaucrats like?

You could call it a “new deal” for motorists if you like. A previous, quite successful, Labour PM was fond of that term. However, it’s also worth recalling that Tony Blair ran into quite a bit of trouble when he squeezed motorists too hard.