Should licensed taxis be exempt from pay-per-mile charging? The tax debate that could see cabbies hundred’s of pounds out of pocket

The Licensed Taxi Drivers’ Association’s (LTDA) latest campaign for London’s black cabs to be exempt from the Government’s planned pay-per-mile charging scheme may appear, at first glance, to be a London issue.

In reality, it raises a much bigger question about how professional drivers should be treated as the UK enters a new era of road taxation. If ministers agree that licensed taxis deserve different treatment because they provide an essential public transport service, the decision could influence policy far beyond the capital. If they refuse, the consequences are likely to be felt by taxi and private hire drivers in every part of the country.

For years, the industry has been adapting to major policy changes. Drivers have invested in cleaner vehicles, complied with increasingly demanding licensing standards and absorbed rising operating costs while continuing to provide an essential service for millions of passengers. Now another significant change is approaching, one that could alter the cost of running a licensed vehicle for years to come.

The Government plans to introduce pay-per-mile charging from April 2028 as part of wider reforms to Vehicle Excise Duty. As more motorists switch to electric vehicles, Treasury revenues from fuel duty are expected to continue falling. Fuel duty has long been one of the Government’s largest sources of motoring tax income, but electric vehicles contribute little towards it.

Ministers therefore face a growing challenge. If more vehicles no longer buy petrol or diesel, an alternative method of taxing road use becomes increasingly difficult to avoid.

Under the current proposals, fully electric vehicles would pay around 3p per mile, while plug-in hybrids would pay 1.5p per mile. Mileage would be measured using annual MOT records, creating a straightforward way of calculating the annual charge without requiring satellite tracking or in-car monitoring technology.

For many private motorists, the financial impact may prove relatively modest. A driver covering 8,000 miles each year in an electric car could expect to pay around £240 annually. Even 12,000 miles would amount to approximately £360.

Professional drivers operate in an entirely different world.

On average cabbies working full-time can accumulate around the 30,000 mile mark. Some licensed taxi and private hire drivers will comfortably exceed 40,000 miles each year especially in more rural areas where dead mileage traveling between jobs is higher and more common.

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At those levels, the proposed charges become much more than a minor increase in running costs. A fully electric vehicle travelling 30,000 miles would face a bill of around £900 each year under the current proposals. Even vehicles charged at the lower hybrid rate, which many London cabbies driving the LEVC TX would fall under, could still incur several hundred pounds in additional costs every year.

Unlike private motorists, licensed drivers cannot reduce their mileage to avoid the charge. Every mile represents work. Every journey generates income. Driving fewer miles simply means earning less.

That difference sits at the heart of the argument now being made by the Licensed Taxi Drivers’ Association (LTDA).

The LTDA believes London’s black cabs should not be viewed in the same way as privately owned vehicles because they fulfil a very different role. Licensed taxis are part of London’s transport network. They provide wheelchair-accessible transport, operate throughout the day and night, accept street hails, serve areas where other transport options are low and carry passengers who often have few realistic alternatives. Many undertake school transport contracts, hospital journeys and work that bridges gaps in the wider public transport system.

Those responsibilities come with obligations that they are compelled to undertake that private motorists do not face.

Black cab drivers must pass one of the world’s most demanding geographical qualification processes. Vehicles must meet stringent licensing standards, undergo regular inspections and satisfy accessibility requirements. Drivers cannot refuse journeys that might be commercially unattractive (unless they are long journeys of a certain length or time), and they are expected to provide a service regardless of weather, time of day or destination.

It is those obligations that support the LTDA’s argument that licensed taxis should receive similar treatment to other commercial vehicles that already benefit from taxation exemptions or concessions.

Steve McNamara, the LTDA’s General Secretary, recently revealed that the association had spent months building relationships within the Treasury before ministerial changes forced discussions to begin again. The organisation is now seeking support from Chancellor John Healey, while also asking Transport for London and the Mayor of London to back its case before the policy comes into force.

Whether ministers accept those arguments remains uncertain. Any exemption immediately creates another question. If London taxis receive special treatment, why should licensed taxis elsewhere not receive exactly the same consideration?

Outside the capital, hackney carriage drivers perform many of the same functions. They transport elderly residents to medical appointments, provide accessible transport where buses are unavailable and support the night-time economy in towns and cities across Britain. Their operating models may differ from London’s, but their public service role remains the same.

Private hire drivers could also argue they deserve equal recognition.

Although they cannot pick passengers up from the street and can manage their mileage more affectively due to choosing the work they complete rather than being compelled to accept fares, private hire vehicles have become an vast part of Britain’s transport network.

Many local authorities increasingly rely on licensed private hire operators to deliver publicly funded transport services where other options are limited.

Every additional cost ultimately has to be paid by someone. Drivers may absorb it through lower earnings. Operators may absorb it through reduced profits. Passengers may absorb it through higher fares. In practice, the burden is usually shared across all three. That comes at a time when the industry’s financial pressures have rarely been greater.

Vehicle prices remain substantially higher than they were before the pandemic. The transition towards cleaner vehicles has required many drivers to invest £70,000 or more in a replacement taxi, often funded through finance agreements stretching over five or six years making the cost to the cabbie escalate towards the £100,000 marker. Monthly repayments have risen alongside higher interest rates, leaving many drivers with considerably larger fixed costs before they even begin work.

Insurance has become another major challenge.

Across much of the country, taxi insurance premiums have increased sharply over recent years, with many drivers reporting annual renewals thousands of pounds higher than they experienced only a few years ago. Servicing costs have also climbed, while tyres, replacement parts and routine maintenance all continue to edge upwards.

Successive governments have encouraged the taxi industry to invest in lower-emission vehicles. Grant schemes, licensing reforms and clean air policies have all pointed drivers towards electric and hybrid technology.

Thousands responded by investing heavily in cleaner vehicles, often making financial commitments that will continue well into the next decade.

Some within the industry now question whether introducing mileage charging so soon afterwards risks sending mixed signals.

The Government wants cleaner vehicles. It wants greater use of public transport. It wants improved accessibility. Licensed taxis contribute to all three objectives. The question therefore becomes whether they should be taxed in exactly the same way as a privately owned electric car used for occasional leisure journeys.

Those arguing against exemptions make a different case.

Roads require investment regardless of who uses them. Electric vehicles cause wear to road infrastructure just as petrol and diesel vehicles do, and replacing declining fuel duty revenues will require a broad tax base.

Creating numerous exemptions risks making the system more complicated and transferring the financial burden onto other motorists.

That is a legitimate argument, particularly as governments seek long-term, sustainable funding for Britain’s transport infrastructure. Equally legitimate is the argument that licensed passenger transport occupies a unique position within that system.

The next two years are therefore likely to see increasingly intensive lobbying from across the licensed transport sector. London’s black cab trade may be leading the conversation today, but don’t be surprised to see every taxi association and private hire representative body have their say in the coming months too.

Whatever ministers eventually decide, the decision will extend well beyond a new tax calculation. It will demonstrate how Government views the role of licensed passenger transport in modern Britain. Is a taxi simply another vehicle on the road or does it provide a unique and vital public service to the community that should be recognised?