Written evidence submitted by the Association of Accounting Technicians (EVP009)

Association of Accounting Technicians (AAT) welcomes the opportunity to provide a short response to the this Call for Evidence and has limited its comments to the issues of road pricing given the range of questions relating to zero emissions are of limited relevance to AAT.

AAT does not favour road pricing systems in the form of tolls such as those operated on the M6 and Dartford Crossing, a dozen other UK roads or the toll systems around the world such as those in Dubai, the autostradas in Italy and those in various US states, most notably California. This is because such systems are limited in coverage, likely to be more expensive than pay as you drive (PAYD) and already have a rather negative image amongst the British public.

Factors contributing towards negative political and economic connotations in the UK include the fact that under the original agreement when the Dartford crossing (QEII Bridge) was constructed, charges were supposed to be scrapped when the bridge had paid for itself (2003) but to the dismay of many users, this has never happened and it has gone on to generate hundreds of millions of pounds in profit for the Department for Transport. The M6 toll road is privately owned and at £6.90[1] costs more than three times the £2 charged to account holders using the Dartford Crossing[2]. At £13.80 for a return trip on the M6, costing daily commuters well over £3,500 a year to use a single road is not a great advert for those concerned about affordability or the impact of private ownership of the UK’s road network. A further example of their negative status in the UK is partly evidenced by the relief reported when tolls on the M4 and M48 Severn bridges were recently scrapped[3].  

Instead, AAT has long believed there is a strong economic and fiscal case to be made for the introduction of a PAYD approach. In its 2018 report, “Alternatives to Tax Rises” AAT stated;

“The OBR suggests revenue from car usage could be up to £23bn less by 2030 based on the switch to electric vehicles.

Replacing fuel duty, VAT on fuel and Vehicle Excise Duty with a tax on usage modelled on existing pay as you drive (PAYD) insurance systems would therefore appear worthy of consideration.

PAYD currently bases insurance costs on the distances travelled, the time of travel and the type of roads used e.g. a motorway vs quiet country roads.

The technology already exists, was trialled by thousands of Aviva customers between 2005-2008 and is now being offered by several start-up insurance companies such as Just Miles, who provide drivers with a free onboard telematics box.

There would be costs involved in providing telematics boxes, although this is something Government could require car manufacturers to provide in the future, but PAYD is likely to be a good way of protecting this much needed revenue whilst also being fairer than the existing blanket approach.

The Department for Transport and HM Treasury would need to undertake detailed analysis but PAYD could be set at a level that protects however much is likely to be lost from changing driving habits and would thus save £9- £23bn.[4]”

International evidence

Italy made it compulsory to have telematics boxes fitted as standard in all new cars almost a decade ago and whilst being insured in this way is not compulsory in Italy, PAYD insurance is legally required to be cheaper than any other form of car insurance, making it more attractive to consumers.

The US similarly has millions of cars fitted with telematics boxes.

However, the prevalence of such boxes is no longer a good indicator as to the prevalence or otherwise of telematics usage because technology has moved on and several insurers no longer require a black box to be fitted. They are instead operating on the basis of a mobile phone app. With 95% of the UK population owning a mobile phone[5], this significantly reduces the likely costs of introducing PAYD here for taxation, in addition to insurance, purposes.

AAT is not aware of any country in the world that currently utilises PAYD for road tax purposes or indeed for any purposes other than insurance. As a result, this is an area in which the UK could legitimately claim to lead the world if it were to introduce such a scheme.

Safety

The amount of driving an individual undertakes can greatly influence the likelihood of a road traffic accident and so not only does PAYD enable insurers to make more informed risk assessments, by helping to reduce driving (and helping to reduce driving at peak times on busy roads) accident risk is concomitantly reduced.

Public Support

The Committee will doubtless receive representations referencing the Downing Street petition of 2007 which attracted over 1.5m signatures opposing non-specific plans for road pricing. However, in the 14 years since, there has been an increase in congestion, a reduction in air quality and of course significant legislative changes, particularly in the form of a legally binding “net zero” commitment. Furthermore, there has been a substantial shift in public attitudes towards technology and the environment and demonstrably towards the idea of pay as you drive schemes. As recent Ipsos Mori polling indicated, the public are now broadly supportive of PAYD[6].

The benefits of PAYD need to be effectively communicated to further increase such support.

There should be an emphasis on multiple benefits rather than focusing solely on revenue raising and even here, it can be framed in a more user friendly manner. For example, rather than justifying implementation on the grounds of revenue raising to replace that lost from duel duty, highlight that it will raise revenue to help fund public services or if possible, for what specific purposes e.g. public transport and road maintenance. If merged with existing PAYD insurance technologies, the increase in actuarial accuracy that PAYD enables will also reduce insurance premiums for many drivers – a more personal financial benefit than appealing to the wider societal benefits of better funded public services.

For many, environmental considerations will be key and so the likely reduction in congestion by discouraging driving at peak times and overall reduction in emissions (both by disincentivising too much driving and by virtue of PAYD applicability to electric vehicles) will be important messages to communicate.

There is a very real risk that public acceptability will decrease in the next few years as the switch to electric vehicles increases and with it, taxation decreases. This means more and more individuals will become acclimatised to paying no VED and limited amounts for charging, effectively rendering car ownership and driving a low tax activity. This means the introduction of a new charging structure, whether PAYD or any alternative, will be particularly challenging because it will involve the introduction of charges where there were previously none or very little. This is another reason for the speedy introduction of an alternative system of taxation.

Additional benefits and considerations

From a public policy perspective, merging any nationwide PAYD scheme with PAYD insurance systems would also help reduce uninsured driving. Given the Motor Insurers Bureau (MIB) estimates there are one million uninsured drivers in the UK (4% of all road traffic)[7] this would be a considerable benefit.

Some may argue that PAYD or any other form of road pricing may negatively affect the take-up of electric vehicles. This ignores the fact that the Government announced that it would end the sale of new petrol and diesel cars and vans by 2030 so there will be no choice but to take up an electric vehicle from that date onwards (second hand and private care sales excluded).

This also ignores the very significant fact that electric cars, like any car, still have a considerably negative impact on the environment. Indeed, research from the European Commission has concluded that non-exhaust traffic-related sources of pollution (brake, tyre, clutch and road surface wear) are estimated to contribute almost equally to traffic-related particulate matter emissions[8].

Finally, PAYD would be well suited to delivering straightforward exemptions to groups or individuals for whom policy makers deem it necessary e.g. emergency services and the disabled.

About AAT

AAT is a professional accountancy body with approximately 50,000 full and fellow members and over 80,000 student and affiliate members worldwide. Of the full and fellow members, there are approximately 4,250 licensed accountants who provide accountancy and taxation services to over 400,000 small British businesses.

AAT is a registered charity whose objectives are to advance public education and promote the study of the practice, theory and techniques of accountancy and the prevention of crime and promotion of the sound administration of the law.

Further information

If you have any queries, require any further information, or would like to discuss any of the above points in more detail, please contact us.

February 2021

Endnotes