Road Fund

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 the 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.

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 Exchequer, 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.

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