The oddly fascinating history of ‘road tax’ and the Road Fund

Winston Churchill 1925 opposition to 'road tax'

“There has been no direct relationship between vehicle tax and road expenditure since 1937.”
Policy and External Communications Directorate, Driver and Vehicle Licensing Agency (DVLA)

“The hypothecation of vehicle excise duty was abolished in the 1930s, although the excise licence is still sometimes mistakenly referred to as a ‘road fund licence’.”
A brief history of registration, DVLA [PDF]

It’s often assumed that ‘road tax’ pays for Britain’s roads. In fact, it’s general and local taxation that pays for roads. Proceeds from Vehicle Excise Duty – a tax on vehicles, not a payment for use of roads – goes into the Consolidated Fund, the coffers of the Treasury. ‘Road tax’ – a ring-fenced pot of cash raised by motorists and to be spent on roads – was created in 1909, mortally wounded in 1926 by then Chancellor of the Exchequer Winston Churchill and no longer ring-fenced by 1937. Up until 1926, British roads had been – partially – repaired by the monies that accumulated from the tax on motoring. During the motorcar boom of 1896-1936, the British road network grew by just 4 percent, and the great majority of those new roads that were built were paid for not by motor taxation but from local authority funds.

The road tax pot was called the Road Fund. This was administered by a Road Board.

The Road Fund had been set up in the 1909/10 Finance Act, part of Lloyd George’s famous ‘People’s Budget’.

“The brunt of the expense at the beginning must be borne by motorists, and to do them justice they are willing, and even anxious, to subscribe handsomely towards such a purpose, so long as a guarantee is given in the method and control of the expenditure that the fund so raised will not merely be devoted exclusively to the improvement of the roads, but that they will be well and wisely spent for that end.”
Budget speech of then Chancellor of the Exchequer, Lloyd George, April 1909

Lloyd George introduced a graduated tax on cars, based on their horsepower, and a tax on imported oil. Motorists had to pay an annual amount into the Road Fund. Lloyd George gave a pledge to motorists: the Road Fund money would be ring-fenced, to be spent only on road maintenance projects. This ring-fencing was deeply opposed by the Treasury and by Customs & Excise. A Customs official wrote in 1909: “The plan of ear-marking special taxes for special purposes is open to serious objection.”

Ring-fencing of taxes was heretical then, and it’s still heretical now (the TV licence fee, ring-fenced to pay for the BBC, is the exception that breaks the rule).

However, Lloyd George ignored his officials:

“I want to make it clear…that expenditure undertaken out of the fund must be directly referable to work done in connection with the exigencies of the motor traffic of the country.”

The Road Board, created by the Development and Road Improvements Bill, published in August 1909, gave grants from the fund to local authorities to repair roads damaged by motorists. Even in the early days of motoring, roads were mostly paid for by general and local taxation. Paying Road Fund dues was never a fee for using a road, it was a fee to be paid out to local authorities for the damage done to roads by motorists. A Customs memo of 1908 said the “increased taxation of motors…” would “aid in restoring local roads damaged by motors licensed in other areas.”

finance act 1910

Lloyd George said the Road Fund’s “first charge” was for improvements after damage done by cars; “power to build new roads” was only secondary.

William Plowden, in his 1971 book ‘The Motor Car and Politics, 1896-1970’ said:

“What was striking about the Road Fund was not its failure, but – given the heretical principles on which it was based – its survival: into the mid-1930s in practice, into the mid-1950s in form, and into the present day as a weapon of political argument.”

No new roads were ever built by the Board, and it sponsored few major improvements; much the largest part of its grants (over 90 percent in all) went towards small scale improvements in road surfaces. In 1919 the Ministry of Transport was created with a Roads Department. The Road Board became superfluous and was disbanded. The Road Fund continued to exist, but not for much longer.

'Road tax' expenditure table 1910-30

The Treasury, never happy with the ring-fenced Road Fund, constantly plotted against it.

In 1921, the Treasury’s Sir Otto Niemeyer wrote a private memo to Sir Robert Horne, the then chancellor:

“The Chancellor will probably not wish to raise this controversy at the present moment, but at the same time he may think it well to give no further encouragement to the theory that motor taxes must be spent on roads.”

The Ministry of Transport was opposed to going back on Lloyd George’s 1909 pledge to motorists but the Chancellor saw the need for the pledge to be superseded at some point. To Niemeyer, Horne replied: “I am anxious that special emphasis should not be laid upon such a pledge at the present time. The financial future is so uncertain that it is impossible to say that no changes shall ever take place in the destination of the proceeds of motor taxation. If the need arises, some Chancellor of the Exchequer may some day be compelled to use some of the revenue from motor taxes for general purposes…”

By 1923, the Treasury’s opposition to ring-fencing of motor taxation came out into the open. A memo circulated to the Cabinet said: “It appears to the Treasury that the time has come when it is desirable to hold an enquiry to determine what should be the national policy in regard to the finance of road expenditure and motor car taxation…”

In the same memo, the Treasury heaped scorn on the principle behind the Road Fund, outlining the ludicrous situation the priniciple of ring-fencing extended to other sectors: “…e.g the taxes on drink, liquor, licences, etc., to bear the charges for police, prisons, and the administration of justice; the income tax the cost of defence; the death duties the debt charges and so forth – it is easy to imagine the confusion that would result…Some of the services charged on the funds would languish for insufficient funds, some would run riot with excessive sums at their disposal. In short before long the whole system would be reduced to chaos…”

The Treasury said the suggestion that Government had ever made a ring-fencing pledge, in perpetuity, to motorists was a “preposterous claim” and that it was not right that “any set of taxpayers are entitled to make binding terms with Parliament as to the application of the taxes levied from them. The bargain, such as it was, was made during another Parliament and with another government; and there can be no question that Parliament has full power to alter the rates of motor taxation and the application of the proceeds without the consent of the motor users.”

By 1925, the Treasury was preparing the way for scrapping ring-fencing. Sir George Barstow, Controller of Supply Services, said it was not possible “to maintain that the action of the government, three Parliaments ago, stopped all governments for all time from imposing taxation on the owners of motor cars for purposes other than paying for roads and bridges. Motor taxation was in no sense voluntary. It was imposed by Statute; and what Parliament had done, Parliament could undo.”

In minute to his officials in November 1925, the then Chancellor Winston Churchill said:

“Entertainments may be taxed; public houses may be taxed; racehorses may be taxed…and the yield devoted to the general revenue. But motorists are to be privileged for all time to have the whole yield of the tax on motors devoted to roads. Obviously this is all nonsense…Such contentions are absurd, and constitute…an outrage upon the sovereignty of Parliament and upon common sense.”

Churchill wanted to end the Road Fund’s ring-fencing once and for all.

To a deputation of rural interests, he said his proposed abolition of the Road Fund was not anti-motorist: “Let me say clearly, I have an expensive motor car, and use it a great deal, and I have nothing personal in my argument – I am speaking from a detached point of view.”

Closing the Road Fund would have met opposition from the Ministry of Transport; diverting cash from the fund less so.

Churchill and his Treasury mandarins felt they were entitled to take £7m from the Road Fund because the Treasury had given the Road Fund a grant of £8.25m in 1919.

A ‘raid on the Road Fund’ was feared by motoring organisations but they could do little to stop it. In 1927, Churchill made the first of his two ‘raids’ on the Road Fund. His budget of that year was the beginning of the end for the Road Fund. The whole of the Road Fund’s £12m was absorbed into national coffers (it took until 1937 for the Road Fund to be emptied; it limped on, in name only, until the 1950s).

Churchill’s opposition to the Road Fund was largely financial but not exclusively so. Fearing motorists would lay claim to roads by dint of paying for a small portion of their repair, he wrote:

“It will be only a step from this for [motorists] to claim in a few years the moral ownership of the roads their contributions have created.”

In a note to Churchill by the man who had pushed Lloyd George to make the ring-fencing pledge to motorists in the first place, Austen Chamberlain wrote:

“I certainly never imagined such a statement could be construed by any sensible man as binding on Governments or Parliament with no regard to time or circumstances.”

In 1927, the Treasury noted that the main supporters of the Road Fund were private motoring organisations who wanted road improvements not for the good of the country but to drive faster: “it is clearly absurd that the State should be asked to provide large and ever-increasing sums for what are virtually pleasure racing tracks.”

Belief in the continued existence of ‘road tax’ was heavily engrained at the highest levels. Conservative MP Colonel JTC Moore Brabazon, Parliamentary Secretary at the Ministry of Transport in 1923-7, and even Minister for Transport in 1940-1, said in a 1932 speech in the House of Commons, that money that went to the Road Fund was

“motorists’ money. It is not Imperial taxation. It is money that comes from the motorists, to be spent on one definite thing, namely the roads.”

In this view he was wrong, and it’s a mistake made down to the present day.

The UK’s inter-war road building programme was not paid for by motorists alone. In 1929 the Government authorised a £28m programme for an extension of the trunk roads programme and £27.5m five-year programme for classified roads. New build roads were paid for by general taxation, not from ‘road tax’.

The 1930 Royal Commission on Transport report on road transport reported that two-thirds of the maintenance cost of roads – despite the existence of the Road Fund – was met by general and local taxation.

The Salter Report of 1932 recognised that motorised road vehicles were guilty of “using the common highway for private profit, while endangering public safety, amenity, and capital.”

In May 1936, Austen Chamberlain the told the House of Commons that the Road Fund would be wound-up the following year and absorbed by the Ministry of Transport. The Road Fund, raided by Churchill in 1926, halting it in all but name, was therefore defunct from 1937 onwards.

Now, we have Graduated Vehicle Excise Duty, a tax on motorised emissions. In fact, this is similar to when car tax discs were introduced in 1921: cars with greater horsepower paid more.

Then as now, road are darn expensive to build and maintain: motorists have never paid the full costs of the tarmac they drive on. Motorists have always been subsidised to drive.


And motorists, from almost the first days of motoring, have believed the roads belonged to them.

By 1907, two years before the creation of the Road Fund, motorists had forgotten about the debt they owed to prehistoric track builders, the Romans, turnpike trusts and bicyclists (the Cyclists’ Touring Club and National Cyclists’ Union had created the Roads Improvement Association in 1886). Before even one road had been built with motorcars in mind motorists assumed the mantle of overlords of the road.

A satirical verse in Punch magazine of 1907 summed up this attitude:

The roads were made for me; years ago they were made. Wise rulers saw me coming and made roads. Now that I am come they go on making roads – making them up. For I break things. Roads I break and Rules of the Road. Statutory limits were made for me. I break them. I break the dull silence of the country. Sometimes I break down, and thousands flock round me, so that I dislocate the traffic. But I am the Traffic.


Forty years later, J.S. Dean, the journalist and head of the Pedestrians’ Association, wrote ‘Murder Most Foul’, a polemic calling for an end to “road slaughter” and an end to the motorists’ view that highways were made for their exclusive use.

“The private driver is… most strongly influenced by the sense of ownership of his car, and, as he often believes, of the road as well. It is “his” car to do with as he pleases, and, as he often believes, it is “his” road too, and the other road-users are merely intruders who are there at their own peril.

This belief (it is of interest to note) has its origin in the vicious and anti-social proposition, embodied for a time in the Road Fund and since sustained by the motor and road propagandists, that the motorists have a right to demand that the motor taxes should be devoted exclusively to the construction and “improvement” of roads, i.e. as experience has shown, to the construction and “improvement” of roads with special or exclusive reference to the convenience of the drivers and with a general disregard of the convenience and safety of the other road-users. Of course, one might as well say that the drink taxes ought to be devoted to the construction and improvement of public houses or the duties on cosmetics to the establishment of beauty parlours.

From 1923 to 1938 the road tax disc security background text read ROAD FUND LICENCE. in 1939 the tiny text switched to MECHANICALLY PROPELLED VEHICLE LICENCE.

Even though the Road Fund was no more by 1937, motor vehicle log-books continued to use the term. The RF60 log-books were issued by local authorities, some of which used the designation VE60, for vehicle excise. RF60 and VE60 log-books were finally phased out in 1977 when the newly-created DVLA took over the registration of vehicles.

ChapelHouse road fund licence

Many motorists and motoring organisations still use the antique terms Road Fund and Road Fund Licence. This is wrong, a point stressed by the Federation of British Historic Vehicle Clubs:

“It is still common to hear the ‘tax disc’ referred to as the Road Fund Licence, an expression that dates from the time that vehicle tax was collected by local authorities and linked directly to road building and maintenance. The direct link between vehicle taxation and road construction (and hence the ‘road fund’) ended in 1937. Nowadays, the correct name for the amount payable for a tax disc is Vehicle Excise Duty.”

VED too obscure? Use ‘car tax’. This is both accurate and intelligible to all. ‘Road tax’ carries with it the whiff of ‘road ownership’ and, over the years, has caused unnecessary conflict between road users, all of whom have equal rights to use of roads. In short, motorists do not pay for roads, we all do.

+++++++++ is an ironically-named campaign supporting the road rights of cyclists. The message that cyclists have equal rights on the roads is carried on iPayRoadTax t-shirts and jerseys.