It wants eVED to be the successor to fuel duty. But the numbers don’t add up. Pay-per-mile will raise £7bn a year by 2050-51, according to the Office for Budget Responsibility (OBR). That’s less than a third of the current £24bn tax take earned from fuel duty.
It seems inevitable that a dramatic increase in eVED charges will be needed to make up the shortfall. What starts as 3p per mile could soon be 10p.
A chunk of current fuel duty is that Pigou Tax upon emissions. If no emissions are being made then that tax – and that tax revenue – should not exist. But here we’ve the politcos insisting that the same revenue must be raised even if there aren’t those emissions that should be brutally taxed.
BiS is quite right that this is a problem with Pigou Taxes. No, I don’t know what the solution is. Other than yes, taxing petrrol is better than giving MadEd a free hand…..
Fuel tax was never a Pigou tax. Nobody thought about CO2 when it was introduced. It could be classed as a sin tax like alcohol duty, which has been around for centuries – all those stories of 18th century brandy smugglers, and poteen stills in Ireland.
Yep an ex-ante rationalisation
Brandy was invented partly for preservation but also to avoid and reduce duties. You paid for a barrel of booze, regardless of strength.
It’s why Courvoisier, Hine, Martell and Hennessy are right next to the Charente river in Cognac and Jarnac. It’s a very navigable river that leads to the Atlantic so easy transport to Bristol. And those names. Couvoisier was French, but the others were founded by Thomas Hine (Dorset), Jean Martell (Jersey) and Richard Hennessy (Ireland).
Armagnac never got so big because it’s inland, small rivers.
Sorry what’s the BiS reference?
Overall if the pigou tax is not linked to the mitigation, has no exit path (i.e when the externality is resolved) and goes into general taxation for the national accounts rather than offset the mitigations the ‘pigou’ part is more rationalisation than reason.
It’s even worse with fuel duty as , at least until EVs become a significant share , its close to being a regressive transaction tax on physical goods (and raises vastly more than we spend on roads).
I would generally suggest a real Pigou tax should be hypothecated in some way to the mitigation of the externality with a clear exit path. Fuel duty has the exit path as EVs rise but no hypothecation hence the inconsistent panic.
(I am a big fan of exit statements for policy interventions …).
I’d much rather a realisation that road infrastructure was a general enabler* and supported through general taxation and only demand management (congestion) charges applied at the transactional level.
*even for cyclists …
Bloke in Spain makes this point repeatedly.
And yes, it was, sorta, hypothecated. When Ken Clarke introduced the fuel duty escalator it was to “meet our Rio commiuttments”.
But where does the money actually go? General taxation. Therefore Pigou is a bollocks figleaf.
I’ve made this point before. A Pigou tax would only be valid as such if the revenue were used to offset the externality being targeted.
No, you can use it for anything. Pollution is one factor in life.
The residents of Pilton getting free tickets for Glastonbury is a Pigou tax. They might not like 3 days of loud music, but they get a ticket each (£350) which means they can go or cash it in and spend it on something nice. An elderly couple in Pilton might prefer not to have Busta Rhymes and The Prodigy for 3 days, but if they get £700 to thank them for putting up with it, what nice things can they buy with that for the rest of the year? A weekend away? Presents for grandchildren? A couple of cases of wine?
Correct. In practice, the Pigouvian Tax is
A trades with B. C is not a party to the trade but is affected by the trade. Therefore, government Q taxes A. Which does FA for C.
After further review, it does FA for A and B as well.
It indirectly goes to the people who suffer the pollution.
Forget the global warming thing, and take a power station burning coal. Everyone in the town has slightly worse air because of it. Bad. So, we get the power station to pay the council £1m. Now the council can spend the equivalent of £10 for each of the 100,000 residents. The simplest thing is they cut everyone’s council tax bills, so everyone gets £10 from the power station, indirectly. But the local people might also like it if the council spent that on a new leisure centre or whatever.
It’s the only sensible way to get things done. If you want to build a new runway at Bristol Airport, understandably, people in Chew Magna and Brockley are going to be pissed about it. So pay BANES or Chew Magna Parish council a ton of money per year. We’d be fracking in no time if we offered the people of Blackpool say, 5% of the money. You’d have punch-ups between Guardian-reading hippies and people that want a Range Rover, placards saying “Fracking Now” up against the “No Fracking” ones.
There’s also reverse-Pigou. Improving a place. Charming old buildings kept in good order makes our environment nicer. But we don’t reward the owners of listed buildings for it. So it’s a burden and leads to cans of paraffin in the basement accidentally catching fire.
How about spending that million quid on exhaust filters? Then everyone benefits from actually cleaner air rather than having a tenner to blow on the Lottery or a leisure centre full of fat benny bludger cunts.
Better still, how about loading up the leccy bills a bit to pay for proper, maintained filters on all coal power stations? Then, those who benefit from the leccy pay the proper price for nice clean air. Pigou can fuck off.
“Mandy Rice-Davies defence”… “Well, he would say that, wouldn’t he?”.
Surely the point of any tax is to reduce demand? I mean, that’s what the government tell us about fags and alcohol duty, the congestion charge and LEZ’s, but now* they’ve sussed that it’ll mean they will have less of our money to spunk on their pet projects and their friends, they have to rebrand it somehow.
*Some of us pointed out that little home truth when they gave the tax break to EV buyers / owners in the first place.
This was one of the amusing things about the London congestion charge, that it raised less than expected, because of course, behaviour changed.
Taxes are to raise revenue. Always. Justifications about changing behaviour are mealy-mouthed hogwash.
More than that: it’s totalitarian. Government has legal and moral authority to tax to raise revenue. Using that taxing authority to change behavior is evil abuse.
https://wattsupwiththat.com/2026/04/25/good-news-fifth-circuit-says-governments-tax-power-is-not-designed-to-control-behavior/
A federal court agrees with me.
Some of us pointed out that little home truth when they gave the tax break to EV buyers / owners in the first place.
The Economist was warning of a cliff edge in fuel duty and related revenues well before 2017 when I gave up my subscription.
Of course politicians kicked the can down the road.
You’re reminding me of the fuss about the tobacco tax here in Oz. Supposedly introduced to stop people smoking that awful tobacco, it’s grown so high that flogging illegal tobacco has grown into a flourishing industry.
Needless to say, the combined opposition of the criminals and the do-gooders has frustrated all efforts to reduce it.
Classic Baptists and Bootleggers problem.
The CO2 part of fuel duty is of course just virtual signalling. It is an additional purchase tax on a commodity levied because the government can.
The honest thing to do would have been to increase VAT/Sales Tax on fuel. Same applies to booze. Long gone are the days when a customs duty could sensibly be applied to alcohol ( or tobacco ). It is just revenue generation pretending to look after our health/clinate.
Road tax and fuel duty receipts could probably tarmac the entire country every year, but of course it all just disappears into the gaping maw of the Treasury and spent on fripperies such as the NHS ir benefits.
You have to stop thinking “£31bn from cars” and tax somewhere else. Its purpose is not to collect taxes but to change behaviour and the money is a bonus.
Lots of people, including a councillor I know, don’t understand the point of parking charges. It was rationing scarce resources so they could get more people to shop. But we’ve lost the connection between the shopkeepers and the council. National government sets rates, not councils. So they don’t have the old incentives to improve the town (get the parking right, more money for shops, more you can charge business rates).
“Its purpose is not to collect taxes but to change behaviour and the money is a bonus.”
The other way round, I always thought.
Well, that might be how it’s ended up, but you should apply these taxes for a reason. If you’re not, just charge people more council tax. Piece of piss to collect.
There’s a lot of truth to what Esteban says about this. Government could just let fuel duty disappear and stick it on council tax, but people will bitch about that. I reckon it’s why no-one has done the sensible thing of scrapping VAT and NI and just making it all income tax. Because headline income tax would rise, even though everyone would be as well off (and we could fire armies of accountants and tax specialists).
WB, income tax didn’t work out that way here. Tens of billions are spent on accountants and tax specialists every year to navigate the Catch-22 that is the US tax code. It doesn’t have to be that way, but politicians have encrufted the code to help friends and punish enemies. The only way to stop that would be to enact a flat tax and horsewhip any politician that tried to change it .
I’m not going to get into what politicians do, but what should happen. There is no point at all debating good government policy if the fall back is “but this is what politicians do”. We elect them. We can pick better ones. Maybe we pay them properly so we get people who treat the people of Swindon and Cleethorpes as their customers rather than the RMT or Balfour Beatty?
£1m salary each, £650m per year for MPs. It sounds a lot, but it’s piss all compared to how much is being thrown at stupid railways because lots of the fuckers get paid by contractors and unions. People who were disconnected would do it. It would get them a nice house, Porsche on the drive.
Why is the US president paid half the salary of the CEO of Build-a-Bear Workshop, a $500m company? I’m not saying that Trump is doing market manipulation, but who can blame him if that’s the shit salary for that job?
No, we pay them £0 each. It should not be a career choice.
“But if we pay peanuts, we get monkeys” is the usual whine. We have empirical evidence from the public sector that, even if we pay a king’s ransom, all we get are very expensive monkeys.
Yes, it should. It absolutely should be a career choice.
If you want people to work for you, you have to pay them in cash or fun (for want of a better word). Ballet dancing is fun, so you don’t have to pay much. Unblocking fatbergs is no fun, so you have to pay well. Human rights law pays a lot less than defending fag companies because people would rather do human rights law.
If you don’t pay politicians much, you get two other forms of corruption. Firstly, the people who support them have to pay back for the favour. Secondly, they will do stuff they want to do, or what improves their social standing. They’d like to keep going to the right sort of dinner parties.
Boris fucked up things because his wife could pussy whip him. If we’d paid him £5m, he’d have told her “bitch, GTFO” and be banging one of the many Swedish lingerie models that would like some of that. Whatever malign influence she had on government would have gone.
As for the public sector, who is in charge of that? It’s not us, is it? It’s precisely the useless, underpaid politicians. Your laptop goes wrong, Dell get it fixed rather than being utter incompetents. Why? Because the guy in charge gets paid a shitload and will set the right incentives.
It’s not (or at least, not only) the high pay packet that is the incentive for the CEO of Dell: it’s the prospect of being out on his ear if the company fucks up once too often. If the company goes under that’s his shares, and possibly his pension, gone as well. His reputation takes a hit, so his next gig might be a lot less lucrative and have a lot less status.
The public sector parasite (and local govt chief execs already get high 6 figure salaries – have you noticed any signs of good management in return? I haven’t) fails, and she gets pushed sideways at worst, generally fails upwards to a higher grade. Or maybe “retires” for a day, starts collecting the gold-plated index-linked pension, and comes back as a consultant on twice the daily rate. We get told “lessons will be learned” and nothing changes. Your professional politician on £1m/year still isn’t going to care, because she’s untouchable until the next election; and if she gets voted out then there’s always a few quango boards that need seat polishers.
The answer, IMHO, is to make politics something that the retired and the independently wealthy do to “give something back” to society. And to give them as little as possible to fuck up.
We didn’t pay MPs a salary until 1911. Has the quality of politician improved since then?
If you incentivise people to be politicians, you’ll get more politics (if that’s even possible).
Sadly, even with a £1M pa salary some (a lot?) of them will still be at the trough, and the Westminster lobbyists won’t shut up shop.
The point is that at £1m you’d get a lot more competition. Many good people would do the job without needing external money. Few people can.
If you’re a senior manager at an engineering firm, why would you become an MP? You’ll halve your salary. Have to put up with Mrs Miggins complaining about price of football shirts. If you bang your secretary, you’re in deep trouble. Not a great deal. So the people who do it are mostly clowns. Either idle posh boys with plenty of money, or people being paid by the RMT.
Does the CEO of Vodafone or WHSmith do things for his mates, or in the interest of the shareholders who pay him a good wage? Right, he works for the shareholders. Because they supply him the sort of money for a nice house, Porsche, mistress.
Many politicians don’t give a shit about staying in the job. The ones that aren’t being bribed are rich kids with plenty of money, so fuck it if they screw up. An Alan Sugar or Jim Ratcliffe that come from being a joiner’s son is going to want to keep the Porsche and the hot babe and work hard at running the country well so it stays that way.
I hear this argument about school teacher pay occasionally.
“If we paid teachers more, we’d get better teachers.”
So, if you start paying teachers more, all your current teachers are going to quit so better teachers will take the jobs. Wait . . . what?
Pay more and the shit incumbents will make more. Nothing else changes.
Quit? Of course not. We fire them because this other guy is better.
Same with MPs. At election you’re going to have more competition for the job.
What outcome does raising per-mile create? The simple one is that you give more priorities to direct routes over faster ones. And this isn’t like petrol where most people can’t figure that out so much. They are told how much they are taxed per mile. You want to go Swindon to Solihull, that’s £2.50 on the M40, £2.13 on the Burford/Fosse route. Some people are going to be all “fuck the taxman” or just not valuing time, and now you’re clogging up the bridge at Lechlade and Burford high street. And someone does it once and figures out that it’s a more enjoyable drive than the motorway, they might not go back.
The same is already happening because of speed cameras on the motorway.
Driving from Dorset up to Lancashire every few months to visit family, I used to go on main roads to the M5 and steam up that at 95mph. Until I was caught by a speed camera, which I hadn’t realised they had brought in on motorways.
Now I go on the little roads, pretty much in a straight line, through lots of towns and villages; Shaftesbury, Warminster, Chippenham, Cirencester. Since I can only do 70 on the M5, it’s quicker (marginally), cheaper (10-15% less fuel), and gives me nicer places than a service station to stop off for lunch or a coffee and wee.
And more people are doing it; the roads that way have got noticeably busier over the last few years.
It makes sense for me to change my route, given the tougher speed enforcement, but it must be a major pain for the people who live, work or shop in those places that are being clogged up with traffic that should, in a sensible world, be whizzing up the motorway at 95.
One of the ironies of this is that motorways, even with people doing 95 (at appropriate times) were safer than country roads. Motorways are far, far safer. What speed cameras took away was priority and discretion. Cops flagging down idiots, not people driving fast at 3 in the morning.
Also, I reckon all the various travel apps made those routes better. Easy to find petrol, shops etc with Google Maps if you’re going through Melksham but never been there before.
I can give you two tips on that route. Rave Coffee in Cirencester, on the industrial estate. They roast coffee there and have a cafe serving cakes, sandwiches and you can park there. About 5 minutes off your route. The Potting Shed at Crudwell is very good for food, just north of Malmesbury, on the road
That ability won’t continue forever. Remember that EVs are stuffed full of computery things and can easily track the actual route you took, so expect the government to follow up basic road pricing with different prices for different roads and for different times of the day. And then to have your vehicle automatically issue you with speeding tickets. And other penalties such as driving in a bus lane etc.
Not just EVs. My 13 year old Audi became too expensive to repair so I now have a 3 year old petrol VW. Quite apart from a significant learning curve it’s quite scary how much it’s tracking my driving and nagging me for small infractions . I’m sure VW Central have started a big file…
Pigou is a figleaf. It simply raises the price to what the market will bear. Raise it until the pips squeak, then back it off a little, just like setting up a gain structure. This is how one discovers the optimum point on the Laffer Curve.
Which, of course, the people doing this deny exists.
Waze gets “cheapest drive” route option in 3, 2, 1…
The TomTom app on my phone already has a “Shortest Route” option, which is virtually the same thing.
Both Google and Apple Maps offer the choice.
Seen this play out in the US quite a few times – new road opens with tolls that will be retired in 10 years MOL when the bonds are paid off. Once the bonds are paid off the gov’t takes a look at that revenue stream and figures people are used to the tolls, there will be less bitching about not removing them than raising taxes elsewhere, so the tolls stay put.
The one joyous bit about this is that I’ve seen it happen more than once that a referendum to increase sales taxes for some specific purpose was rolled out shortly after the tolls were extended & the voters made it clear that they remembered the broken promise.
Nothing so permanent etc…….
Whenever he says Tim Worstall is wrong about Pigou taxes?
I’d say this current quote is proving my assertion. If the fuel duty was a Pigou tax, it’s succeeded in its intent. It’s caused people to switch to non carbon polluting vehicles. So there is no justification for taxing them.
However it’s never been an actual Pigou tax & was never intended to be. It’s never monetised the cost of carbon emissions. How could it? The cost, if there is a cost, has always been an unknown. The level of tax was set at what the government thought it could get away with. Now it’s incorporated in the budget a tax has to be extended to electric vehicles or the budget won’t balance. ( Not saying it ever does 🙂 )
Using the word Pigou is a hazard. Pigou taxes are never spotted in the wild. The name’s just used to make taxation appear to virtuous & easier to sell to the public. It’s as credible as the Virgin Mary.
I can’t see how you can have a genuine Pigou tax. How do you price something that isn’t happening?
Incidentally, I was looking at the Wiki entry for Pigou taxation & managed to wade through the waffle by various economists below. Which is much about tax efficiency. No doubt all very academically rewarding. But they completely ignore the motivations of governments in democracies. Governments aren’t particularly interested in tax efficiency. Governments are interested in extracting the maximum taxation will get them reelected To buy the most votes at the least electoral cost.
100%
Pigou subsidy is another thing. Take WB’s coal power station example. Whack a bit on everyone’s bill to pay for proper exhaust filtering. Then, the people suffering the externality – the pollution – pay for the cleanup because they also get the benefit from the original transaction – the generation and sale of leccy.
Pigou taxes are ostensibly used to change behavior.
A polluter who doesn’t use emission control equipment gets charged the cost of buying and using the equipment as a tax instead, so he might as well buy and use it, is the thought.
This assumes the equipment is possible to purchase and you can calculate that cost.
Fuel duty doesn’t do this. The only way you can not pay any fuel duty is to buy no fuel. And you get charged regardless of what else you use.
That the duty goes to general revenue instead of being hypothecated to pollution mitigation efforts is just another tell that it isn’t a Pigou tax and never was.
You can pay less fuel duty by buying a more efficient car.
Not sure that’s actually a good thing, since a lot of the costs (and the emissions, if you care about such things) over a car’s lifetime are in the manufacturing rather than the driving. But there is an available behavioural change.
In general, you should get a more efficient thing when the old one is fucked and you need a new one anyway.
Don’t Pigou Taxes internalise an externality? So BEVs are using road infrastructure without contributing to its cost, increasing wear and tear on the infrastructure due to heavier vehicles, bought their vehicle with taxpayer subsidies – so they enjoy all the benefits of a motoring, without paying the true cost as users of ICE vehicles must.
So the new taxes on BEVs are internalising that externality. Isn’t it?
That’s fine if the cost is correct. The total spend on National Highways is £5bn. Total VED is £8.4bn. There’s already enough money from VED to pay for roads. We don’t need to tax wear and tear.
Although, arguably, we should lower VED and have fuel taxes for ICE cars and a mileage cost for EVs.
But this isn’t about covering £5bn of spending as accurately as possible. It’s about £31bn that is going to get spent on non-road things like degrees in history of art, barely used choo-choos and weapons to Ukraine.
If you follow the logic of Pigou taxes – to reduce the demand in order to reduce the harm caused by the use or consumption, then we should be taxing politicians.
We should definitely apply surcharging.
We should also have a general law against cuntishness in public office.
Shirley Porter was surcharged £50m for selling council homes on the cheap to potential Tory voters.
Gordon Brown did exactly the same thing, but he called his voters ‘key workers’ and so he got away with it.
It’s cunts, all the way down.
Who cares what sort of tax it is? It’s a tax on a tax as well. The problem is not that there’s a tax at all, it’s that the rate is too high – and that’s because a large part of the tax raised is simply wasted.
Fuel excise in Oz has always been sold as money intended for road maintenance, not a Pigou tax (never mind where it actually goes). Farmers and the like get a rebate on diesel duty for fuel not used for road vehicles. The justification was never environmental.
All makes sense so far. But there is rumbling here about moving to a road usage tax to get EVs in the net, and the greenies are not happy. *Now* it’s apparently a Pigou tax.