Banning new diesel and petrol vehicles from 2040 will leave a gaping hole in the Treasury’s finances as fuel duties would be wiped out.
That’s according to Kevin Nicholson, Head of Tax at PwC UK, who said the mass adoption of electric vehicles (EVs) would signal the culmination of a trend towards ever-lower fuel tax revenues that began with the fuel efficiency movement.
Fuel duty currently accounts for 4% of all UK tax receipts, expected to bring in nearly £2 billion this year. In comparison, Stamp Duty will bring in around £1 billion and council tax £30 billion.
Mr Nicholson said he expects fuel duty revenues to decline by about 0.5% of GDP by 2022.
To keep available revenue steady, the government has stated that from 2019, the main rate of fuel duty will rise each year in line with inflation, after being frozen since 2011.
However, Mr Nicholson said these rises will be pretty meaningless once petrol and diesel car production stops and there will still be a tax gap.
The tax leader said environmental policy can’t be dictated by tax and suggested it would be a mistake to simply look for ways to plug the hole left by fuel duty.
He added: “The fourth industrial revolution, with new technologies like artificial intelligence, is going to continue to shake up the tax base.
“More immediately, Brexit will force change to the tax systems as rules need to be revisited. The need for a fundamental review of the UK tax system can no longer be ignored.”
The European Commission has referred Italy to the Court of Justice over fuel duty reductions.