Net zero plans to blow £37bn black hole in road taxes unless ‘new sources’ found, Treasury says

But Rishi Sunak fights shy of expected solution to cash crisis - a pay-per-mile ‘road pricing’ system

Revenue from road taxes will all-but disappear as the UK goes green, the Treasury has conceded – blowing a £37bn black hole in its budget unless “new sources” are found.

Rishi Sunak’s “net zero review” makes no proposals for plugging that huge gap, amid widespread expectations that a pay-per-mile “road pricing” system is inevitable, as electric cars replace petrol and diesel.

But it acknowledges “significant and permanent fiscal pressure” on the nation’s finances, which is unlikely to be offset even by higher carbon taxes on industry.

And it warns: “Motoring taxes will need to keep pace with these changes during the transition to ensure the UK can continue to fund first-class public services and infrastructure.”

Significantly, the Treasury says it would be unfair to “pass the costs onto future taxpayers through borrowing”, which would also make the green transition more expensive.

The document adds: “The government may need to consider changes to existing taxes and new sources of revenue throughout the transition in order to deliver net zero sustainably, and consistently with the government’s fiscal principles.”

Without changes, receipts from fuel duty and vehicle excise duty “will decline towards zero during the first 20 years of the transition, leaving receipts lower in the 2040s by up to 1.5 per cent of GDP in each year”.

Despite the belief that the Chancellor is sceptical about big spending on new green technology, the review warns that “current economic analysis could understate the economic cost to the UK as the climate heats up”.

“UK climate action could provide a boost to the economy; the required investment could contribute to growth,” it states.

It also hails other benefits, such as cleaner air, which could deliver “£35bn worth of economic benefits in the form of reduced damage costs to society, reflecting for example lower respiratory hospital admissions”.

The Treasury has been accused of “running scared of road-pricing”, but there was an expectation that the net zero review would confront it – an expectation now dashed.

Nevertheless, Greenpeace gave the document a warm welcome, saying it provided evidence that “the Treasury might actually be starting to get it”.

“Taking a longer-term view of the huge economic opportunities from climate action, as well as the costs of inaction, is the right approach,” said Rebecca Newsom, the group’s head of politics.

But the words “must now be matched with ambitious policies to reap rewards and avert climate disaster” in next week’s three-year spending review, she added.

The net zero review also recognises the need to help poorer households, who otherwise would face higher costs from being the last to make the switch to electric vehicles.

The document is published as the government wrestles with how to meet a binding commitment to reduce emissions by 70 per cent from 1990 levels by 2030 – and achieve net zero by 2050.