Motoring tax reaches 100th anniversary – so what’s changed?

This week’s budget coincides with the 100th anniversary of Lloyd George’s Peoples’ Budget which set the foundations of modern motoring taxation. The IAM (Institute of Advanced Motorists) has taken a look back at how things have changed for motorists since April 1909.

In the early 20th century, motoring in Great Britain was in its infancy, but the growing number of vehicles meant roads were becoming inadequate for their purpose. Director of IAM policy and research, Neil Greig, said: “It was fair to expect motorists to pay for road improvements, but today motoring taxation has spiralled and most of the revenue doesn’t go into improving road infrastructure.”

Echoing many of the complaints of modern day drivers Lloyd George said in his 1909 speech: “It is quite clear that our present system of roads and of road making is inadequate for the demands which are increasingly made upon it by the new form of traction. Roads are too narrow, corners are too frequent and too sharp, high hedges have their dangers, and the old metalling, admirably suited as it was to the vehicles we were accustomed to, is utterly unfitted for the motor-car.

“Both the general public and motorists are crying out for something to be done, the brunt of the expense at the beginning must be borne by motorists, and to do them justice they are willing, and even anxious, to subscribe handsomely towards such a purpose, so long as a guarantee is given in the method and control of the expenditure that the funds so raised will not merely be devoted exclusively to the improvement of the roads, but that they will be well and wisely spent for that end.”

The funds were managed by the Road Board and the Chancellor stated all of the revenues from taxes would be directed to the Road Board; none would be taken by H M Treasury:

“I (will) deal first with motor cars, and so dispose at once of a source of revenue from which, I, as Chancellor of the Exchequer, shall derive no advantage.”

The new road tax was based on the Horsepower rating of the engine and was set in eight bands; the least powerful cars paid £2 a year, compared with £42 for the most powerful cars. Today the lowest tax band costs £35 and the highest is £400.

The Road Fund was never fully utilised, and the growing surplus was regularly used for non-road purposes by Government. In 1926, Chancellor of the Exchequer, Winston Churchill raided the fund, and the hypothecation of motoring taxes into the Road Fund was formally ended in 1936, with the proceeds of road vehicle taxes paid directly into the Exchequer.

The flat rate taxing system replaced the Horsepower system in 1947. Now the wheel has gone full circle with today’s road tax based on CO2 emissions.

The Chancellor also introduced fuel tax. In doing so he recognised the deficiencies and unfairness of an annual road tax that bore no relation to the extent to which a car might be used, saying:

“I, therefore, propose to put a tax of 3d per gallon on all petrol used for motor vehicles. This small tax, very small compared with what hon. Gentlemen would have to pay if they were motoring in France, where they would be compelled to pay 1s. 8d. This small tax will fall on motorists in proportion both to the distance travelled and also to the power of the car, for the Committee knows that a high-powered car will consume considerably more petrol per mile run.”

The somewhat modest tax of 3d a gallon in the early part of the 20th century turned into a cash cow with huge revenues paid to the treasury. At one time in the 1990s the tax reached 85 per cent of the pump price and it led to the fuel protests, and an end to the fuel tax escalator.

Mr Greig added: “The fundamental reasoning behind road tax has been forgotten since 1909. The fund was meant to be used solely for roads improvement and no profit or ‘advantage’ was to be made by the Exchequer, now £40 billion in motoring taxes goes straight to the Government every year and only £8 billion gets reinvested in new safer roads and other transport systems.

“Many roads are in a poor condition with pot holes and a basic lack of key safety engineering features such as barriers. More needs to be invested in the road network to ensure motorists are given back the fair deal first promised over a century ago.”