Roads Act 1920; funding roads

The Roads Act 1920 provided a legal link between revenue from vehicle excise duty (VED) and funding for road building and maintenance. This link was formally broken around 15 years later, but the broad policy aim has since come full circle. What did the act do and what is its legacy 100 years on?

What did the act do?

The act amended the legislative framework relating to motor vehicles and roads. Principally, it:

  • Made county councils responsible for levying licence and excise duties on “mechanically-propelled vehicles and other carriages”, with revenue paid to the exchequer.
  • Established a centrally administered ‘road fund’. The proceeds of licence and excise duties paid into this fund would in turn be used to finance allocations for the construction of new roads and/or the “maintenance or improvement” of existing roads by local authorities. The fund replaced an earlier grant-assisted ‘road board’ that had been set up in 1909.

The act introduced an example of a hypothecated, or earmarked, taxation measure, in which a specific tax revenue is used for a specified purpose. A much earlier example was ‘ship money’, first charged in the medieval period on English seaports and coastal regions to finance the Royal Navy.

The act followed a number of changes to how motor vehicles were taxed and licensed over the preceding three decades. Vehicle excise duty (VED) was levied on four-wheeled motor vehicles from 1889 and additional duties on motor vehicles were later introduced, for example by the Locomotives on Highways Act 1896. Meanwhile, the Motor Car Act 1903 required that all motor cars driven on public highways be numbered and registered.

Parliament also agreed measures over time to improve how roads were maintained. Responsibility for this was previously held largely at a local level. In 1906, a royal commission on motor cars proposed increasing motoring taxation and creating a central road fund to improve the state of the nation’s roads. Then, in 1909, David Lloyd George, then Chancellor of the Exchequer, announced that the road network would be self-financing with a new tax on cars spent on roads. This led to the establishment of a grant-funded road board, which oversaw the construction and maintenance of roads until the Roads Act 1920 brought the road fund into being.

By the 1930s, the road fund had become notorious for being ‘raided’ for other purposes. For example, Winston Churchill referred to it as the “raid fund” during what he described as an “unguarded moment” in one debate in the House of Commons. Speaking as a backbencher, Mr Churchill added that he agreed with those standing against hypothecated taxation. He remarked that it was a “monstrous assertion that any important body of taxpayers should claim proprietary rights over the particular quota of taxation which they contribute”. Earlier in the same debate, Neville Chamberlain, then Chancellor of the Exchequer, called the road fund an “anomaly […] which ought to be corrected and replaced by the more normal method of allowing the House of Commons to assess its needs each year”.

Hypothecation was formally ended by provisions in the Finance Act 1936, which ensured that by 1 April 1937 the revenues from motor vehicle taxes were paid directly into the consolidated fund—the Government’s general bank account at the Bank of England. The road fund was formally abolished in 1956 under provisions in the Miscellaneous Financial Provisions Act 1955.

VED and roads today

Recent years have seen a direct link between VED and road building and maintenance reintroduced, at least in respect of major roads in England.

In 2015, George Osborne, then Chancellor of the Exchequer, announced the then Conservative Government’s intention to restore a link between vehicle taxation and spending on the road network. The summer budget document from that year stated:

[…] this budget announces a reform to vehicle excise duty (VED) to create a new roads fund […] From 2020–21, the Government guarantees that all revenue raised from VED in England will be allocated to a new roads fund and invested directly back into the strategic road network.

The Department for Transport’s Road Investment Strategy 2: 2020–2025, published on 11 March 2020, confirmed that VED receipts in England would be hypothecated for spending on strategically important roads:

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. Not only does this provide the security of a long-term funding stream, the link reinforces our ambition for greater customer service and responsiveness to users.

In 2019, the Government estimated that the national roads fund would be £28.8 billion between 2020–25. Of this, it has said: “we expect £25.3 billion to be spent on the Road Investment Strategy 2, which will repair, renew and enhance the strategic road network”. It added: “the remaining £3.5 billion will be spent on local roads, with major structural renewals eligible for funding. On top of this, we have allocated £6.6 billion between 2015 and 2021 to local highway authorities in England, outside London, for highways maintenance”.

The March 2020 budget document provided examples of schemes that stood to benefit from VED-hypothecated funding. These included:

  • dualling the A66 Trans-Pennine and upgrading the A46 Newark bypass in the North East and the Midlands;
  • improving the M60 Simister Island [interchange] in Manchester;
  • building the Lower Thames Crossing across the Thames east of London; and
  • building a new dual carriageway and a two-mile tunnel on the A303 in the South West that runs close to Stonehenge.

At the time of the March budget, Chancellor of the Exchequer Rishi Sunak is reported to have said roadbuilding would form part of a broader national infrastructure strategy to be published later in the year.

HM Treasury published this strategy on 25 November 2020. In it, the Government reiterated its commitment to various road projects across England, including the A66, A46 and A303 schemes. On strategic road funding more generally, it stated:

The Government will make the largest ever investment in England’s strategic roads—£27.5 billion over this Parliament, a 60% increase on spending in the last five years. This major investment will ensure that these national traffic corridors are well designed, delivered, maintained, and continue to serve all road users into the future.

Read more

Cover image by Benjamin Elliott on Unsplash.