Road Fund
Encyclopedia
The Road Fund was a British Government fund designated to pay for the building and maintenance of the United Kingdom road network. Its income came originally from vehicle excise duty
, until that ceased to be hypothecated for roads use in 1936, and then from government grants. It was created by the Roads Act 1920
and Finance Act 1920, and was wound up in Miscellaneous Financial Provisions Act of 1955.
The Road Fund is notable as one of the few beneficiaries of hypothecated taxation
in British history, and is the root of a popular misconception that vehicle excise duty (especially when referred to as road tax
) is still hypothecated. Between 1920 and 1936 the vehicle licence
(tax disc) was officially known as the "Road Fund Licence", a term which is still in colloquial use today.
, David Lloyd George
combined these grants into a single tax on petrol and a duty on the rated horsepower of motor cars. Under the same act it became compulsory for motor vehicles subject to VED to display a vehicle licence (tax disc) as visible evidence of having paid the tax.
Road locomotives were subject to a separate 'wetted tax', where the fee was proportional to the size of the wetted area of the steam boiler.
In 1907 a major problem associated with roads was the level of dust raised by passing motor vehicles and there was support for a tax of £1 or 10s. per horse-power to pay for improvements to roads to solve this problem.
At the time Lloyd George announced that the roads system would be self financing so from 1910 the proceeds of road vehicle excise duties
, which had been in existence in various forms since 1889, were dedicated to fund the building and maintenance of the road system under a scheme known as the Road Board. Under the Roads Act of 1920 the Road Board was replaced by the Road Fund, dedicated solely to road building on the basis that no other claims would be made on the Exchequer for construction of new roads.
The Road Fund was never fully utilised, returning a surplus each year, and it became notorious for being used for other government purposes. Winston Churchill
opposed the Road Fund, saying: "It will be only a step from this for them to claim in a few years the moral ownership of the roads their contributions have created". In 1926 as Chancellor of the Exchequer
Churchill sought, successfully, to redirect a third of payments as taxation on luxury and pleasure uses with the stated aim of putting competition between road and rail on a fair basis. At the same time, the majority of road building and maintenance costs were met from general and local taxation.
In 1932 Lieut. Colonel Moore-Brabazon
said in a debate in the House of Commons about the Road Fund: "This vote is different from any other because the money that goes to the Ministry of Transport is 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. If the Government come to the conclusion that they are going to spend less money on the roads, they have to make a case to the motorists why they are not going to reduce the taxation upon their cars. If they are going to keep on the same taxation and to spend the money derived from the motorists upon Imperial taxation, let them say so."
of VED into the Road Fund was formally ended under the Finance Act
of 1936, in accordance with the recommendations of the Salter Report
that controversially sought to introduce a balance between the road haulage industry and the railways. It had concluded that the method of road funding, which had relied on parishes and local authorities to fund a portion of the road network through their own means, represented a subsidy to the road hauliers. After the 1936 Act the proceeds of road vehicle duties were to be paid directly into the Exchequer. The Road Fund itself was finally wound up in the Miscellaneous Financial Provisions Act of 1955, becoming a system of funding through government grants.
Vehicle excise duty
Vehicle Excise Duty is a vehicle road use tax levied as an excise duty which must be paid for most types of vehicle which are to be used on the public roads in the United Kingdom...
, until that ceased to be hypothecated for roads use in 1936, and then from government grants. It was created by the Roads Act 1920
Roads Act 1920
The Roads Act 1920 was Act of the Parliament of the United Kingdom which established the Road Fund, introduced tax discs-Clauses:The Act:*Required councils to register all new vehicles and to allocate a separate number to each vehicle...
and Finance Act 1920, and was wound up in Miscellaneous Financial Provisions Act of 1955.
The Road Fund is notable as one of the few beneficiaries of hypothecated taxation
Hypothecation (taxation)
The hypothecation of a tax is the dedication of the revenue from a specific tax for a particular expenditure purpose. Hypothecation is the pledging of assets....
in British history, and is the root of a popular misconception that vehicle excise duty (especially when referred to as road tax
Road tax
Road tax, known by various names around the world, is a tax which has to be paid on a motor vehicle before using it on a public road.-Australia:...
) is still hypothecated. Between 1920 and 1936 the vehicle licence
Vehicle licence
A valid vehicle licence is required by law in some countries to be displayed on any registered motor vehicle if it is to be used or kept on a public road.-Worldwide:...
(tax disc) was officially known as the "Road Fund Licence", a term which is still in colloquial use today.
History
The origins of the road fund can be traced back to a number of "assigned revenues" granted to local authorities in 1888 as part of a financial settlement to limit recurrent demands for grants from central government. In the budget of 1909, the then Chancellor of the ExchequerChancellor of the Exchequer
The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all economic and financial matters. Often simply called the Chancellor, the office-holder controls HM Treasury and plays a role akin to the posts of Minister of Finance or Secretary of the...
, David Lloyd George
David Lloyd George
David Lloyd George, 1st Earl Lloyd-George of Dwyfor OM, PC was a British Liberal politician and statesman...
combined these grants into a single tax on petrol and a duty on the rated horsepower of motor cars. Under the same act it became compulsory for motor vehicles subject to VED to display a vehicle licence (tax disc) as visible evidence of having paid the tax.
Road locomotives were subject to a separate 'wetted tax', where the fee was proportional to the size of the wetted area of the steam boiler.
In 1907 a major problem associated with roads was the level of dust raised by passing motor vehicles and there was support for a tax of £1 or 10s. per horse-power to pay for improvements to roads to solve this problem.
At the time Lloyd George announced that the roads system would be self financing so from 1910 the proceeds of road vehicle excise duties
Vehicle excise duty
Vehicle Excise Duty is a vehicle road use tax levied as an excise duty which must be paid for most types of vehicle which are to be used on the public roads in the United Kingdom...
, which had been in existence in various forms since 1889, were dedicated to fund the building and maintenance of the road system under a scheme known as the Road Board. Under the Roads Act of 1920 the Road Board was replaced by the Road Fund, dedicated solely to road building on the basis that no other claims would be made on the Exchequer for construction of new roads.
The Road Fund was never fully utilised, returning a surplus each year, and it became notorious for being used for other government purposes. Winston Churchill
Winston Churchill
Sir Winston Leonard Spencer-Churchill, was a predominantly Conservative British politician and statesman known for his leadership of the United Kingdom during the Second World War. He is widely regarded as one of the greatest wartime leaders of the century and served as Prime Minister twice...
opposed the Road Fund, saying: "It will be only a step from this for them to claim in a few years the moral ownership of the roads their contributions have created". In 1926 as Chancellor of the Exchequer
Chancellor of the Exchequer
The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all economic and financial matters. Often simply called the Chancellor, the office-holder controls HM Treasury and plays a role akin to the posts of Minister of Finance or Secretary of the...
Churchill sought, successfully, to redirect a third of payments as taxation on luxury and pleasure uses with the stated aim of putting competition between road and rail on a fair basis. At the same time, the majority of road building and maintenance costs were met from general and local taxation.
In 1932 Lieut. Colonel Moore-Brabazon
John Moore-Brabazon, 1st Baron Brabazon of Tara
John Theodore Cuthbert Moore-Brabazon, 1st Baron Brabazon of Tara, GBE, MC, PC was an English aviation pioneer and Conservative politician...
said in a debate in the House of Commons about the Road Fund: "This vote is different from any other because the money that goes to the Ministry of Transport is 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. If the Government come to the conclusion that they are going to spend less money on the roads, they have to make a case to the motorists why they are not going to reduce the taxation upon their cars. If they are going to keep on the same taxation and to spend the money derived from the motorists upon Imperial taxation, let them say so."
Winding up
HypothecationHypothecation
Hypothecation is the practice where a borrower pledges collateral to secure a debt. The borrower retains ownership of the collateral, but it is "hypothetically" controlled by the creditor in that he has the right to seize possession if the borrower defaults...
of VED into the Road Fund was formally ended under the Finance Act
Finance Act
In the UK, the Chancellor of the Exchequer delivers an annual Budget speech on Budget Day, outlining changes in spending, as well as tax and duty. The changes to tax and duty are passed as law, and each year form the respective Finance Act...
of 1936, in accordance with the recommendations of the Salter Report
Salter Report
The Salter Report was named after Arthur Salter, who chaired an influential conference of road and rail experts in 1932. The report directed British government policy for transport funding for decades to follow.- Railways :...
that controversially sought to introduce a balance between the road haulage industry and the railways. It had concluded that the method of road funding, which had relied on parishes and local authorities to fund a portion of the road network through their own means, represented a subsidy to the road hauliers. After the 1936 Act the proceeds of road vehicle duties were to be paid directly into the Exchequer. The Road Fund itself was finally wound up in the Miscellaneous Financial Provisions Act of 1955, becoming a system of funding through government grants.