The potential role of fiscal policy

The report argues that the UK's current vehicle taxation system is insufficient to meet legal air quality limits and the 2040 target for banning new internal combustion engine vehicles. It proposes a three-tiered strategy: mandating charging Clean Air Zones in the short term, replacing the plug-in grant with a time-limited VAT rebate for ULEVs in the medium term, and developing a road-user charging system in the long term to replace eroding fuel duty revenues.

• Road transport is the primary source of roadside nitrogen dioxide (NO2), accounting for 80% of these emissions. Passenger cars and vans specifically contribute over 75% of total road transport NOx emissions.
• The UK is failing to meet legal NO2 concentration limits; of the 43 Zones in the UK, only six are compliant with average annual legal limits. Without further action, full compliance is not expected until 2028.
• The current UK tax system is deemed unsustainable because a successful shift to zero-emission vehicles would significantly erode the tax base, particularly fuel duty, which provided close to 5% of government tax receipts in 2016/17.
• To meet short-term NO2 legal limits, the report recommends that the Government mandate charging Clean Air Zones by 2020 in all areas exceeding legal limits, supported by targeted scrappage and retrofitting schemes for low-income users and small businesses.
• The report proposes replacing the plug-in car grant with a time-limited VAT rebate: 100% for zero-emission vehicles (ZEVs) and 50% for other ULEVs (such as PHEVs), as polling suggests the current grant is insufficiently generous and poorly understood.
• To ensure the VAT rebate is revenue neutral, the report suggests a small annual levy (approximately £25) on all non-ULEVs in the UK or a 2.5% levy on the purchase price of new non-ULEV vehicles.
• In the long term, the report argues that a road-user charging system is inevitable to replace lost fuel duty revenue and suggests establishing a competitive prize fund for Combined Authorities to pilot such schemes.
• International comparisons show Norway as the most successful in ULEV uptake, largely due to exempting fully-electric cars from vehicle purchase tax and VAT, which can represent up to 50% of a car's price.

APA

Oakley, M., & Thunder, J. (2018). The potential role of fiscal policy. ClientEarth. https://www.clientearth.org/media/lmobrxoe/helping-people-and-business-to-move-towards-cleaner-forms-of-transport-the-potential-role-of-fiscal-policy-ext-en.pdf

Chicago

Oakley, Matthew, and Jamie Thunder. The potential role of fiscal policy. ClientEarth, 2018. https://www.clientearth.org/media/lmobrxoe/helping-people-and-business-to-move-towards-cleaner-forms-of-transport-the-potential-role-of-fiscal-policy-ext-en.pdf.

Wikipedia

{{cite report |last1=Oakley |first1=Matthew |last2=Thunder |first2=Jamie |title=The potential role of fiscal policy |publisher=ClientEarth |date=April 2018 |url=https://www.clientearth.org/media/lmobrxoe/helping-people-and-business-to-move-towards-cleaner-forms-of-transport-the-potential-role-of-fiscal-policy-ext-en.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{oakley2018potential, author = {Oakley, Matthew and Thunder, Jamie}, title = {{The potential role of fiscal policy}}, institution = {ClientEarth}, year = {2018}, month = apr, url = {https://www.clientearth.org/media/lmobrxoe/helping-people-and-business-to-move-towards-cleaner-forms-of-transport-the-potential-role-of-fiscal-policy-ext-en.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }