Thread by @MichaelDnes1

It’s a truth universally acknowledged that road pricing is political suicide.

But what if it wasn’t? And what if I knew people who’d almost proved it?

Come with me, and try to avoid losing a trillion dollars as we go.🧵

https://twitter.com/Psythor/status/1806602476994592953

A caveat: whenever a civil servant talks about road pricing, people ask whether it’s signs of a secret plan.

The old government is gone. The new government can’t make any secret plans because they’re still looking for where the biros are kept.

So no secrets, I promise.

Electric vehicles (EVs) are great news for the environment, but terrible news for the taxman.

Something like a trillion dollars of tax worldwide depend on fuel taxes, or on other taxes that can often involve a big carbon component.

And, by accident, EVs don’t pay.

Billions are hard to imagine. So let’s make it real. £37bn/yr is at stake here in the UK.

That’s enough to pay for all the primary schools, all the prisons and all the publicly funded medical research in the entire country.

So that money’s going to be missed.

And to make it worse, it’s going to happen in an incredibly regressive way

We assume that the fancy car on the left will pay more tax than the one on the right

But more and more, the left one will be electric, and tax-free. And all the tax will be paid by the car on the right

And this taxlessness has real-world consequences. In 2017 I asked our traffic modelers to rerun their big forecast on the basis that all vehicles would go electric by 2050

They worked out that the drop in driving costs would lead Brits to drive an extra 50 billion miles a year.

The obvious answer is to find another tax so electric motorists keep paying their share.

But electric vehicles don’t use special electricity that you can tax. And a purchase or a registration tax won’t restrain gridlock

So you need some kind of per-mile cost.

And that leads you back to road pricing

The principle is you pay a small fee for every mile you drive. Just like you effectively do through fuel taxes today

In the fancier versions, you adjust the prices so you pay less on empty roads and more on busy ones

Economists love this idea. It feels so logical, in a world where we pay for food, water and shelter, not to give away the right to drive down Broadway in rush hour for free.

But politicians loath and fear the thought.

Messing with road taxes isn’t just risky. When Macron tried to raise fuel duty, 30,000 protestors came out on day one and two people died.

The US hasn’t changed the federal gas tax since 1993.

The UK government has deferred the ‘automatic’ fuel duty rise every year since 2010.

When the UK’s first report on road pricing came out (by accident), the Prime Minister himself wrote on the margins of his briefing note “never again”.

When it did happen again, in the mid-2000s, 1.7 million people wrote to the government to object.

So road pricing doesn’t stand a chance

… Except I’ve very nearly seen it done.

Or rather I’ve seen a magic trick that, applied to road pricing, might make it unobjectionable.

Back in 2015, UK car tax was broken. It was designed to encourage people to buy low-carbon cars, which paid zero tax. And, in a twist no one predicted, lots of people started buying low-carbon cars.

The tax was £6bn/yr and dropping fast.

So the tax team at Treasury stuck £110/yr of extra tax onto the greenest cars. I got to watch.

And I saw as they played a clever trick.

They made it so that no one would pay the new tax.

Or, to be entirely precise, no one would pay it _yet_

Only new cars, two years from now

All the cars out there on budget day were unaffected. ‘Grandfathered’, if you want the technical term

It turns out people don’t get angry when you tax something they don’t have

That might sound like it made the whole thing a charade. But you’d be wrong.

Without reform, that tax would have raised £2.5bn last year. Instead, it raised £7.3bn.

The difference is enough to pay for every fire station in the UK.

Grandfathering is the magic bullet of motoring tax.

Imagine country X decides to introduce road pricing. But ONLY for NEW, ELECTRIC vehicles; starting 2 years from now.

Four key consequences:

1) Historically, the downfall of every road pricing scheme is when you tell millions of people that they have to pay extra for journeys they don’t see as optional.

Here, you leave existing motorists alone.

In fact, there’s no reason to bother them. If you think of this as a tax problem, these people are already paying lots of tax.

The thing you’re worrying about is when they trade in their existing cars for something green and _stop_ paying the taxes they’re currently paying.

2) The people who do pay the tax only do so when they buy a brand new car.

There are two strong advantages to this. First, people who buy new cars are few in number – not enough to make an angry mob.

(And not likely to get much sympathy if they do)

Second, people who buy new cars are seldom angry. Tax policy is about winners and losers, and you don’t feel like a loser when you pick up your new keys.

Even if you’re paying a bit more tax than you used to.

3) People driving EVs would naturally be very concerned about any sign their untaxed ride is about to start paying new bills.

Grandfathering exempts those cars from the tax forever.

That isn’t just sparing them a tax. It’s also boosting the resale value of their car by thousands. Because that car will save that much in its lifetime.

The funniest thing is – this giveaway doesn’t cost government a penny. All they do is promise not to take money later.

4) Lastly: new cars are smart. They have modems, geolocation, and a host of other features

If you’re only working with new EVs, road pricing is technically simple. You don’t need roadside kit. You don’t need to retrofit anything. Everything you need is already built into the car

Only one catch. This isn’t an indefinite opportunity

Grandfathering is quick, easy and cheap when there are very few EVs on the roads. But it gets a lot harder when you’re exempting a large part of the existing road fleet

There’s a perfect ‘window’ for doing this – plenty of EV sales, but not many EVs already on the road.

And some countries are already past it.

So in Norway, for example, 29% of the fleet is already electric, and 100% of sales from next year by law. It’s too late there.

Exempting a third of vehicles from a new tax leaves a big hole in the bottom, and may create questions of fairness.

But others – including the UK, France and Germany – are in the sweet spot. Lots of EVs about to hit the roads, but relatively few currently there.

A road pricing proposal, with grandfathering at its heart, might be able to survive politically; and deliver the goods economically.

But, if it's happening, it will get a lot more complex politically if you wait. The rate of EV uptake is such that years matter.

I count at least 8 European nations, plus China, that will be over 10% EV by 2027. In tax terms, that's yesterday.

It’s well above my pay-grade. People like me exist to deliver the will of elected governments, not second-guess it.

The only thing I will say is that the UK will be firmly outside that window by 2029. So, whatever the choice, the new government will be the one making it.

Thanks to @Psythor, @mattyglasias and everyone writing about the recent collapse of New York’s congestion charge for making me realise I had to write this down.

As always, everything in this thread is in the public domain.