Friday, 28 June 2013

How Much Tax Does An Average Car-Owner Pay?

Free Loading Cyclists

How much more tax does a driving motorist effectively pay compared to a free-loading cyclist that is on the same wage?

Well here is a simple spread sheet comparing two people on a £30,000 salary, with the same council tax burden, and each saving the same amount of money each year.

The car owner pays around £655 more, but once you subtract the cost of "accidents" (£13 billion) and road building (£9 billion) that number is greatly reduced to a paltry


notice the minus sign, the motorist pays less tax! .. and if you include further externalities into the mix then that number will quickly become even more negative.


The only externalities I have included in the calculation were the cost of road-building and the cost of "accidents". I specifically avoided other associated costs due to pollution and the NHS burden because it convolutes the argument and is somewhat subjective. One must bear in mind that the people who don't drive still greatly benefit from the roads. They receive goods from internet shopping and postal deliveries, they use taxis, and benefit from freight that deliveries their groceries to shops. So even though they don't drive, they still indirectly contribute to the externalities of motoring. Also many cyclists own cars, so I think it greatly weakens the argument to include any additional externalities when making a comparison.

Why Compare Same Salaries and Same Savings?

The comparison was constrained by using the same salary, and crucially the same savings, whilst allowing spending to take up the slack in the calculation. Why did I do this? Well firstly trying to account for every socio-economic influence would be too difficult, and instead a simple mathematical principle can be used. Cyclists in the UK still represent a minority, which is dwarfed by a massive non-cycling motorist population. From simple statistics, we can state for every cyclist you can always find an equivalent motorist that will have the same salary, the same council tax burden, and who is saving the same amount annually. Therefore the only difference between these two individuals is their spare cash that they spend.

Does Salary Make a Difference?

Now this is interesting, if you change the salary, or change the amount of savings being compared then the difference paid in tax is

always the same!

That's right, try changing the numbers in the spread sheet. The difference in tax is always £655. Why? Because the tax paid on general spending, or the car-standing-charge is a constant ratio, which is VAT!

Tax paid on Spending

Any sharp readers who have looked at the maths in the spread sheet will see that I've taken all the "spending money" and taxed it at 20%. This is a hack. Really this should be a number between 0 and 20% since not all of the spending money would incur tax. i.e. food shopping, mortgage payments, buying second hand consumables rather than brand new. However, choosing this number is not straight forward, as it will depend on the socio-economic status of the people being compared.

But all is not lost in the calculation. We can easily tabulate the extra tax paid against an overall tax-spending-rate, which takes into account purchases and costs which are not subject to VAT.

Effective Tax Rate on Spending MoneyDifference in overall Tax Paid Minus Externalities
0.20 £655-£77
0.18 £731-£1
0.16 £808£74
0.14 £884£151
0.12 £960£227
0.10 £1036£303

Also, if you change the overall salaries, the numbers in the above table do not change!
Therefore, regardless of salary, or savings a motorist is typically paying a very similar tax burden to a person without a car when you compare similar socio-economic conditions (i.e. how much tax they pay on their spending money and living costs).

Only motorists that do more mileage than the average will pay more tax. And that extra tax burden increases by around £76 for every 1000 additional miles that they drive.


When you account for the fact that non car-owners have more spare spending cash than car-owners, you find that they are actually paying very similar tax burdens, despite different salary groups and socio-economic conditions. Yet the government throws massive amounts of money at motoring and road building, whilst neglecting other road users, despite the fact that these demographics appear to be paying similar tax burdens.

Road Tax

And just to be clear, THERE IS NO SUCH THING AS ROAD TAX. It's car tax. You pay based on emissions.


- The cost of motoring was taken from the AA. A typical car will pay car tax of £175 and a "Standing Charge" of around £3350, which includes cost of the car, and keeping it insured.
- "Accidents" cost around £13 billion - £32 billion annually depending on what is included
- RAC gave an average mileage of 8500 miles.

No comments:

Post a Comment