Linking the proceeds of VED to a protected fund to rejuvenate our roads and highways has been suggested as one way to solve the UK’s pothole epidemic.
Edmund King, of the AA, believes VED should be used to create a national protected fund that can be used to pay for future road improvements. “You need all the money to be ring fenced so it is spent on maintenance,” he said.
“If you had a fund from VED that could only be spent on maintenance it would give you the long term funding and also allow you to invest more in the technology that is needed to repair the roads.”
It’s a widely held view across the motoring industry that taxes on drivers – which are set to become more profitable for the Treasury than those on smokers – should be used to improve and maintain the roads.
Hypothecated tax
VED was formerly hypothecated, meaning all the proceeds of a tax are spent on one particular purpose. The money now goes straight into general taxation instead, with the biggest expense being the NHS.
There are few governments in the Western world which still hypothesize their taxes. A common misconception is that the UK’s National Insurance tax is ring fenced to fund the NHS and social care, with shadow chancellor Rachel Reeves recently appearing to make this error in a post on X.
Martin Daunton, emeritus professor of Economic History at the University of Cambridge, said there are good reasons why the Government chooses to put all tax revenues in the same pot.
