A new report has warned that the Government could descend into another funding black hole as the move away from petrol and diesel and other net zero causes could lead to an £800billion cost.
The latest data from the Office for Budget Responsibility states that revenue losses from fuel duty will cost the Government significantly, potentially prompting Chancellor Rachel Reeves to intervene.
The latest central estimate of the "fiscal cost of climate change mitigation" until 2050-2051 is a staggering £803billion, or £30billion a year.
It states that there is "considerable uncertainty" around the future of climate change mitigation, noting that costs could be lower if the Government chose to replace lost revenues from fuel duty with "an alternative motoring tax".
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The Chancellor could be forced to make tough decisions in the coming years as fuel duty revenue falls
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At present, drivers pay fuel duty when they visit the pumps, with 52.95p per litre of petrol or diesel made up by the motoring taxation.
This was cut from the standard 57.95p per litre cost by former Chancellor Rishi Sunak in response to spiralling fuel prices after the Russian invasion of Ukraine in 2022.
The OBR estimates the total revenues from fuel duty in 2024-25 (£24.4billion) to halve by the 2030s and approach zero by 2050-51.
This is based on the assumption that all new cars and vans will be zero emission by 2035, and all new heavy goods vehicles will be zero emission by 2040.
While sales of new petrol and diesel cars will be banned from 2030, drivers will be able to buy second-hand internal combustion engine vehicles for the foreseeable future.
The loss of fuel duty could also drop in the coming years as experts from the Climate Change Committee predicted that zero emission vehicles will reach price parity with equivalent petrol and diesel models in the late 2020s.
The Government could also lose billions from a fall in VAT receipts, as a 20 per cent standard rate is charged on petrol and diesel at the pumps.
Although the loss of VAT will not be as significant to the Government as fuel duty, the rate of VAT on petrol and diesel collected in 2024-2025 was worth around £6.5billion.
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Chancellor Rachel Reeves announced in the 2024 Autumn Budget that the Government would freeze fuel duty rates for 2025-2026, costing the Government around £3billion.
This represented a £59 saving for the average car driver thanks to the 5p cut being extended by a further 12 months until March 22, 2026.
There had been fears that Labour would hike the rate of fuel duty in line with inflation to deal with the £22billion fiscal black hole left by the previous Conservative administration.
The OBR has suggested that the Government could mitigate the impact of fuel duty losses by introducing an alternative form of motoring taxation.
As more drivers switch to electric vehicles, the Government will receive less money from fuel duty and VAT on fuel
PAOne of the most popular proposals in recent years has been the introduction of road pricing for all vehicle owners, no matter what powertrain they contain.
This would see all petrol, diesel and electric vehicle owners pay for their use of the road based on how much they travel, which has been supported by the Tony Blair Institute for Global Change.
In this scenario, a pay-per-mile scheme would be introduced to replace the revenue lost from people not buying fuel, as well as providing a model for the successor to Vehicle Excise Duty (VED).
Proposals include allowing all drivers to have a certain amount of "free miles" and giving particular motorists, like those who live in rural areas, have an additional proportion in the interests of all Britons paying a fair rate.
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