The Government’s pledge to spend ‘every penny’ of English Vehicle Excise Duty (VED) on improving the road network is in tatters after it cut the money in what was its flagship National Roads Fund (NRF) by more than £2bn.
The Budget and Spending Review saw funding for the 2020-25 Road Investment Strategy (RIS 2) cut from £27.4bn to exactly £24bn.
The Government has now confirmed that the £2.6bn over five years for local roads upgrades is for the major road network (MRN) and Large Local Majors (LLMs).
RIS 2 and local road upgrades were to be the sole beneficiaries of a £28.8bn pot of hypothecated VED revenue. This means that the Treasury has held onto approximately £2.2bn VED funding.
The NRF was first announced by the then chancellor, George Osborne in 2015, when he told MPs: ‘From the end of this decade, every single penny raised in Vehicle Excise Duty in England will go into that Fund to pay for the sustained investment our roads so badly need.’
However, the Treasury has not responded to a request from Highways to clarify whether the NRF still exists.
National Highways has said that cuts to the RIS largely reflected delay on major schemes such as the Lower Thames Crossing and the A303 Stonehenge Tunnel.
RAC Foundation Director Steve Gooding told Highways that if delays to these ‘mega projects’ are the reason for the chancellor ‘slipping funding to the right, rather than taking a random whack out of RIS 2, then it is to be hoped that the benefits of funding certainty remain for the rest of National Highway’s activity’.
He added: ‘Hypothecating vehicle excise duty to re-create a virtual “road fund” was an idea that burned brightly but briefly before fizzling out.’
It was originally planned that MRN and LLM schemes combined would receive £3.5bn from the NRF, although this was quietly cut when the RIS 2 budget rose to £27.4bn. The cut to RIS 2 funding means that cuts to local road upgrades are less severe.
However, as Highways has reported, the Spending Review also appears to have cut the level of funding local road maintenance available over the next three years.
In 2019 Simon Clarke, then the exchequer secretary to Treasury, made clear that the NRF did not cover local road maintenance.
He said: ‘The government is delivering its commitment to hypothecate English Vehicle Excise Duty to roads spending, and has announced that the National Roads Fund will be £28.8 billion between 2020-25. From this, we expect £25.3 billion to be spent on the Road Investment Strategy 2, […]. The remaining £3.5 billion will be spent on local roads, with major structural renewals eligible for funding.’
The RIS 2 document, published in early 2020, stated: ‘Funding for this plan is directly linked to the money road users pay. For the first time since 1926, a new National Roads Fund (NRF) will dedicate a sum equal to all receipts from Vehicle Excise Duty for use on our most strategically important roads.’
Mr Gooding told Highways that the end of the promise of hypothecation ‘might not be such a bad thing if, as seems likely, there will need to be a root and branch review of motoring taxation as the chancellor’s income from fuel duty inexorably ebbs away consequent on our switch to electric cars’.
