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Would a pay-as-you-drive scheme be cheaper for me?

Would a pay-as-you-drive scheme be cheaper for me?
Image source: Getty Images


The chancellor is seriously considering a new road pricing scheme known as ‘pay-as-you-drive’. But what would a new pricing scheme mean, and how could it affect you? Well, here’s what we know about pay-as-you-drive so far, and whether it could be good value for drivers or not.

How does pay-as-you-drive work?

It’s essentially a new car tax. Rather than paying fuel duty or road tax, the idea is that you pay for each mile you drive on the road. It’s unclear how the government plans to collect the tax, but it could mean installing a black box in your vehicle or using some form of road tolls. 

It’s not the same as pay-as-you-go car insurance, which is essentially a type of car insurance where you pay lower premiums if you drive less. 

Why is the chancellor considering it?

It’s all about the so-called ‘green industrial revolution’, which means improving our energy efficiency and lowering our carbon footprints.

There’s a huge shift towards electric vehicles, and the government wants to ban new petrol and diesel cars from sale from 2030. While this is great for the environment, it’s not so great for the Treasury. Why? Well, there’s no road tax on electric vehicles, and drivers won’t pay fuel duty anymore, either.

That’s a shortfall of roughly £40 billion in revenue, and the government needs to make it up somewhere. So, the idea is to ‘tax’ people for how much they drive.

What’s more, there’s a general consensus that it’s unfair to expect petrol and diesel drivers to pay all of the road tax while people driving electric cars pay nothing. So we need to find a fair solution going forward, and ‘pay-as-you-drive’ might be just the ticket. 

What does the industry say?

Well, there’s definitely some resistance to the idea.

Motorists rejected a similar national pricing scheme back in 2007, and it’s unclear whether the chancellor’s arguments will be enough to sway the industry this time around. AA president Edmund King certainly doesn’t think the arguments are strong enough, and he’s urging the chancellor to come up with other solutions to make up the shortfall.

There’s also concern that the whole proposal undermines the government’s green agenda. If it’s too expensive to run electric vehicles, there’s no incentive for people to make the switch.

How could pay-as-you-drive affect me?

So we’ve covered how pay-as-you-drive could work, but there’s one question left to answer: could it work out cheaper for you? Here’s what we can take from the chancellor’s proposals.

  • If you only drive once or twice a week, pay-as-you-drive might be cheaper than the cost of fuel duty and road tax. 
  • On the other hand, if you drive daily, or you travel long distances, you’re probably better off paying road tax and fuel duty. 

Another proposal in the pipeline is an annual mileage allowance. For example, if you drive more than 3,000 miles a year, you’re taxed on the extra miles. Again this works out cheaper for infrequent drivers, but it could be more expensive for longer distance driving.

Takeaway

It’s too early to say whether the chancellor will adopt a national pay-as-you-drive scheme or not. But could it be cheaper for you? Well, it depends on how much you drive.

It could certainly be cheaper than standard car tax if you don’t drive much, because you’re only paying for the miles you drive. However, it’s probably more expensive than car tax overall if you’re someone who drives frequently.

Just remember, though, that it’s only one of the options under consideration at the Treasury, so we’ll need to watch this space to see what happens next. 

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