It will need to introduce a new scheme to replace vehicle excise duty as the current decline in revenue from motoring taxation looks set to continue, experts at the Economic and Social Research Council claim.
In a new report, they suggest the Government could lose about £2 billion each year as a result of recent 'stealth tax' cuts on fuel.
Dr Stephen Potter, head of the research team based at the Open University and the University of the West of England, said: 'The success of the London congestion charge has alerted Government decision-makers to the idea that a national version could succeed where mainstream transport policy has failed.
'But a long-term factor that this research project has identified is that revenue from car taxation is dropping just at the time when transport policy is set to cost more and the Government needs more money to invest in health and education.
'Despite a popular image of car 'stealth taxes', the reality is one of car stealth tax cuts.'
Dr Potter said the first round of tax cuts came with fuel tax reductions in the wake of the September 2000 fuel protests, after which there were no increases until last autumn's rise at half the rate of inflation.
Further tax cuts have arisen because tax concessions have been given to greener fuels such as low sulphur petrol, he added.
Financial modelling for the study showed that the Chancellor of the Exchequer could face an annual £2 billion loss in tax revenue from cars from next year.
Dr Potter added: 'These estimates do not take into account the development of radically new car technologies.
'Were hydrogen or electricity to become a major road fuel, they would not only further erode Government revenue, but how could these be taxed at a different rate for transport as opposed to domestic or industrial use?
'What's to stop people charging up at home and paying no road fuel duty and half-rate VAT? Traditional road fuel taxation is going to get harder and costlier to collect and enforce.' Last year, influential independent think-tank the Institute for Public Policy Research (ippr) suggested that congestion charges should be introduced nationally by 2010 and added on top of fuel taxes (Fleet NewsNet, October 16 2003).
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