The original road tax was abolished in 1937, but the name has stuck around. Most adults with a car have to pay the annual Vehicle Excise Duty (which is often popularly referred to as Road Tax. The Post Office calls it a car tax).
As this good BBC article explains – Is there anything such as Road Tax in the UK?, it could be better described as a pollution tax. The amount of vehicle excise duty you have to pay is dependent on the amount of pollution that a car creates. If your car is in pollution Band A (up to 100 g/km) you pay £0 tax a year. If you’re vehicle is in the highest pollution band Band M (Over 255 g/km) then the cost is £1,065 for the first year and £490.
What it means is that quite a few car drivers don’t pay this ‘road tax’ or vehicle excise duty as it’s properly called.
Vehicle excise duty goes to the Treasury and is not earmarked for paying for roads.
Cyclists are often criticised for not paying ‘road tax’, and quite a few drivers have the opinion that if you don’t pay road tax that gives you less rights on the road (e.g. cycle in the gutter). It can feel like a losing battle to explain that road tax doesn’t exist. It can be frustrating because:
- Many adult cyclists will be paying a huge range of taxes, including VED.
- The amount of tax you pay, shouldn’t influence the way people drive on the road. You don’t run over a pedestrian because they haven’t paid as much tax as you.
The Vehicle excise duty is an attempt to make drivers pay some of the external costs of driving (namely pollution). Pollution is an external cost because it effects everyone on society. The tax is an attempt to make the cost of motoring reflect the true social cost.
These external costs of driving include include:
- - Congestion – estimated to cost the UK economy in the region of £22bn a year. A huge economic cost and also high personal cost of being stuck in traffic jams,
- - Pollution – For example, CO2 emissions which contribute to global warming. Higher rates of asthma e.t.c
- - Accidents. Motorised vehicles cost the lives of over 2,200 a year. Typically, cyclists may cause the deaths of 0, 1 or 2 people a year.
- Wear and tear on roads which increases disproportionately with vehicle weight.
For driving a car the social cost is much higher than the private cost. To get an efficient allocation of resources – to help reduce congestion, pollution and accidents, – the cost of driving should be much higher than the free market price. Petrol tax helps redress the balance, but, it is not enough to reflect the social cost.
External cost of driving
By contrast, cycling doesn’t have the same negative externalities. You could make a strong case to say that cycling can have various external benefits
- Improved health
- Reduced congestion
- Reduced risk of serious accidents.
- Less impact on roads (less frequent need to repair potholes)
In an ideal world, there is a case for subsidising goods with positive externalities – and if not subsidising, at least not taxing at the same rate as cars which create more pollution and congestion.
In a free market, we get an overconsumption of cars (best illustrated by interminable traffic jams). When deciding to drive people ignore the external costs of driving. When cycling people underestimate the social costs. Therefore we get under-consumption of cycling.
The problem is that people don’t like paying taxes. But, without some attempt to include external costs of congestion and pollution, we get gridlock and poor health.
Vehicle excise duty is partially good in that it is an attempt to discourage cars with higher levels of pollution. There is a clear incentive to buy a car which has a low pollution band. However, pollution is only one of the external costs of driving. That is why we should also be including costs of congestion e.t.c.
BTW: I am a motorist, and do pay £160 a year in VED – but, generally would welcome higher taxes on driving. To make it more politically appealing, it would be good to earmark, these taxes to improve transport – fill in potholes, provide alternatives to congested city centres.