The ideal approach, would be a system of
road pricing under which the charges for driving would vary according to the time of day and the location. Those driving in busy places would pay more, but the majority of journeys would be taxed less heavily than at present, the IFS said.
Road pricing has proved to be a hard sell with the public and the IFS said a second-best solution would be the introduction of a flat-rate tax per mile driven that would be used to supplement reduced revenue from fuel duties and help correct for the social costs of driving.
There was an advantage in acting quickly, the IFS warned, because it would be much harder politically to introduce such taxes only once the revenue from fuel duties had dropped much further and many people had bought hybrid or electric cars in the expectation of paying little tax on them.
Rebekah Stroud, an IFS economist and co-author of the report said: “Cuts to fuel duties over the last two decades have contributed towards revenues’ being £19bn a year lower than they would have been.