A graduate transport planner has won the annual Wolfson Economics prize by coming up with a radical way for motorists to pay for all forms of motoring taxation. The universal “pay as you drive” model combines car insurance, road tax, congestion and pollution levies, as well as fuel duty.

The Wolfson Economics Prize, founded by Next fashion chain boss Lord Simon Wolfson, invites people to submit ideas for addressing important economic issues, with a prize of £250,000 up for grabs.

This year, people were asked to submit ideas for making the UK’s roads better and safer, while benefitting the economy and the environment. This is something that all motorists would like to see happen soon. With 120 entries coming in from seven different countries, judges were impressed with the range of innovative ideas that were submitted. However, there could only be one winner.

Scrapping vehicle excise and fuel taxes

The winning idea came from 27-year-old graduate transport planner, Gergely Raccuja. Raccuja was born in Hungary but now lives in the UK after moving here to study. He suggested that both vehicle excise duty and fuel duty be scrapped and replaced with a pay-per-mile tax plan. He believes this would help to restore trust between politicians and motorists, something that has certainly been lacking.

Originally, vehicle tax was introduced to raise revenue to maintain and repair roads. It was later changed to become a general taxation. However, even when the funds were dedicated to the roads, there wasn’t enough to cover everything that needed fixing.

Fuel duty is paid on several fuels, which are used by most UK motorists (with the exception of local bus services and some farm and construction vehicles) and which adds significantly to the cost of fuel. An abolishment of this tax would see a significant drop in prices at the pumps. Not only would drivers welcome this, but it would also lead to significant economic stimulation, as the cost of running a vehicle would decrease.

Pay-per-mile driving tax plan

The proposed tax plan also has input from the RAC Foundation. It would see motorists being taxed per mile driven, with drivers of heavier, less eco-friendly vehicles paying more than those who’ve opted for lighter models that produce less pollution. The tax would be enforced by insurers based on mileage and car model, paid either monthly or as an annual charge.

Drivers won’t be asked to pay more overall and, as insurers already hold all of the required details, it will not affect people’s privacy. The proposed system will also mean that there won’t be any extra administration charges; drivers will simply pay their road bill alongside their insurance premium.

With the £27 billion being made from fuel duty each year under threaten from the increasing number of electric vehicles on the road, this new tax plan could redress the balance and ensure that drivers of these vehicles would still be contributing to the exchequer’s stream of revenue.

The plan also suggests that if 20% of the new tax funds were allocated to repairing roads, the UK’s potholes could all be gone within five years, making the roads far safer than they are currently by reducing the risk of punctures, bent wheels, and damaged suspensions.

Raccuja’s simple but inventive plan beat a number of other entries, including one proposing tradable road miles, and another which suggested rewarding drivers who changed their driving habits to help to ease congestion.

Is it a way to tax polluters by stealth?

A universal pay-per-mile tax plan would certainly make working out motoring costs a lot easier. It could also benefit the environment, while still bringing in money from eco-friendly cars. It seems to be the perfect plan for creating safer, better roads that everyone pays fairly to use.

However, cynics could argue that a universal pay-per-mile tax model would serve to enforce efforts to remove high polluting vehicles from the road. It could also impact negatively on low income groups who drive for a living.

Similar “pay as you drive” models have been suggested by previous governments . Motoring lobby groups have resisted attempts to charge on a per-mile basis, in the same way that identity cards were resisted as they were seen as too “big brother” and an invasion of civil liberties and privacy.

There are two ways for motoring taxation to function: either tax the products and services we need to drive, or tax the action of driving itself. Taxing the products and services means that there is a higher barrier to entry for people driving but that the costs level off once past that point. With pay as you drive, the barrier to entry is very low and more cost effective for occasional drivers. However, those who drive a lot will end up paying for those who drive less, which we’re not sure is a fair model.

What do you think of the “pay as you drive” idea that has won this economics prize? Would you be happy to embrace the idea if it meant no fuel duty? Is it a way to penalise polluters and low income groups who drive a lot for a living? Let us know in the comments below.

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