How the Government could recover the fuel tax revenue lost?
How it would change the consumer electricity bill?
In the previous section it has been quantified that the Government losses annually around 700 pounds per each EV in the road, due to not collecting oil fuel consumption taxes.
How could the Government recover this lost revenue?
One of the most probable options that the Government could take to recover this lost, could be through applying taxes for electricity consumed while charging the Electric Vehicle.
To quantify, how much electricity prices would need to increase for balancing this lost, it has been analysed the nowadays electricity costs, which are divided in two: the electricity unit price and the standing charge cost 1).
There appears to be two options to compensate the revenue lost: increase the electricity unit price for charging the EV or increasing the standing charge cost per year.
If it is decided to increase the electricity unit price for charging, this would need to increase up to 3.5 times to compensate the lost revenue. Another option would be increasing the standing charge cost per year and maintaining the electricity unit price, so the standing charge cost would need to increase in 10 times to compensate the lost. See Figure 1.
How could the Government recover this lost revenue?
One of the most probable options that the Government could take to recover this lost, could be through applying taxes for electricity consumed while charging the Electric Vehicle.
To quantify, how much electricity prices would need to increase for balancing this lost, it has been analysed the nowadays electricity costs, which are divided in two: the electricity unit price and the standing charge cost 1).
There appears to be two options to compensate the revenue lost: increase the electricity unit price for charging the EV or increasing the standing charge cost per year.
If it is decided to increase the electricity unit price for charging, this would need to increase up to 3.5 times to compensate the lost revenue. Another option would be increasing the standing charge cost per year and maintaining the electricity unit price, so the standing charge cost would need to increase in 10 times to compensate the lost. See Figure 1.
Figure 1. UK unit electricity costs and how would need to change to balance the EV fuel tax revenue lost.
Analysing different approaches, maybe the most probable option for Government, is maintaining the standing charge costs and apply changes to the electricity unit price. If this is the case, and the unit price increase from 14 to 49 pence per kWh consumed.
How would this affect the electricity bill?
The first option of increasing the unit price of electricity up to 49 pence is analysed in detail. How would this change the electricity bill?
The consumer would have an Electric Vehicle Tax Component of 35 pence per kWh consumed, each time the electric vehicle is charged.
With the assumption that each electric vehicle consumes around 2,000 kWh of electricity per year, and an electricity unit price of 49 pence/kWh, the EV owner would pay, as an average, around 1,000 pounds per their EV electricity consumed (only for the balancing the Government lost in the tax revenue).
If is taken into the consideration the cost of upgrading the electricity grid, the overall cost of electricity would be higher, and charging the Electric Vehicle could not be present anymore as “cheaper to fuel” than conventional internal combustion engine cars.
How would this affect the electricity bill?
The first option of increasing the unit price of electricity up to 49 pence is analysed in detail. How would this change the electricity bill?
The consumer would have an Electric Vehicle Tax Component of 35 pence per kWh consumed, each time the electric vehicle is charged.
With the assumption that each electric vehicle consumes around 2,000 kWh of electricity per year, and an electricity unit price of 49 pence/kWh, the EV owner would pay, as an average, around 1,000 pounds per their EV electricity consumed (only for the balancing the Government lost in the tax revenue).
If is taken into the consideration the cost of upgrading the electricity grid, the overall cost of electricity would be higher, and charging the Electric Vehicle could not be present anymore as “cheaper to fuel” than conventional internal combustion engine cars.
REFERENCES
(1) Average variable unit costs and standing charges for standard electricity in 2017 for UK regions.
Department for Business, Energy and Industrial Strategy
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