Cheaper Vehicle Excise Duty for non-motorway users considered

Reforms to road tax follow concerns that increased fuel efficiency could lead to a fall in revenue

A two-tier Vehicle Excise Duty, with a lower rate for those avoiding motorways and other main routes, is among options being considered by the government.

The plans would not necessarily mean those using motorways pay more than at present, a Treasury source said.

The government is currently looking at a number of different ways that roads could be owned and paid for.

The plan has yet to be considered by the prime minister, who had called for "innovative approaches" on the issue.

In March, David Cameron launched the review by saying there was a need for an "urgent" increase in private investment to improve England's road network.

Fresh ideas were needed, he said, to finance road improvements at a time of tight government finances and set the Treasury and Department for Transport to work on a feasibility study.

Under the two-tier plan, part of a driver's Vehicle Excise Duty payments would go to private companies managing and investing in the road network.

Falling revenue

Cameras using number plate recognition technology would be used to catch motorway users who had not paid the higher rate.

Reforms to the duty - often referred to as road tax - follow concerns that increased fuel efficiency could lead to a fall in revenue from it as motorists switch to more environmentally-friendly cars which qualify for lower rates.

Forecasts from the Office for Budget Responsibility show that while tax receipts for Vehicle Excise Duty are expected to remain broadly flat at about £6bn a year over the next five years, they could fall as a percentage of GDP from 0.4% in 2010-11 to 0.1% by 2029-30.

Under the current system, cars fall into 13 payment bands depending on their level of carbon emissions, with more polluting vehicles taxed more heavily.

The duty is paid annually, but a higher rate is payable in the first 12 months of the vehicle's registration.

Cars with the lowest levels of carbon emissions, such as hybrid cars registered in or after March 2001, are exempt from paying the duty.

European regulations aimed at reducing carbon emissions from new cars and improvements in technology are expected to lead to a higher proportion of cars qualifying for the lower bands of VED in the future.

The Daily Mail reported that other options being considered by the government include changes to the duty's payment bands or making the tax a one-off up-front charge on new vehicles, instead of charging annually.

However, linking how much motorists pay with how far they drive on motorways, or their use at peak times, has been ruled out, the newspaper said.

A spokesman for the Department for Transport said: "The department and Treasury are currently carrying out a feasibility study to review new ownership and financing models for the strategic road network.

"This is looking at how best we can secure investment in the network to increase capacity and boost economic growth.

"The government has made clear it will not implement tolls on existing road capacity and has no plans to replace existing motoring taxes with pay-as-you-go road charging."