Taxes and charges on road users (HC 103-ii) Transport Committee 14 Jan 2009

Evidence given by:
2.45 North East Chamber of Commerce
Andrew Sugden, Director of Membership and PolicyLondon First
John Dickie, Director of Strategy and Policy
3.15 Freight Transport Association
Simon Chapman, Chief Economist
Brewery Logistics Group Mike Bracey, Chairman
Central London Freight Quality Partnership
Donald Chalker, Manager
4.00 British Vehicle Rental and Leasing Association
John Lewis, Chief Executive
Retail Motor Industry Federation
Robin Hulf, Parliamentary Adviser
UK Petroleum Industry Association Ltd
Chris Hunt, Director General(witnesses): uploaded on 22 January 2009.

Q154 Mr. David Clelland: I notice in the submission from the North East Chamber of Commerce that they say at their point 2: "Fuel duty needs to be reformed if a national system of road pricing is to be introduced." I wondered if Mr Sugden could perhaps tell us in what way fuel duty should be reformed.

Mr Sugden: We have shared the perspective of the Freight Transport Association and the Road Haulage Association, when we have been looking at the potential for road user charging nationally to be implemented for freight transport, that it should be a replacement for some of the taxation that is placed either on fuel duty or on other vehicle taxes. It provides an equal and level playing field with hauliers from other countries as well as providing a more equitable transport tax for UK hauliers. It is in that perspective that we have taken a view.

Q155 Mr. David Clelland: Do you mean that fuel duty should be reduced or abolished, in other words?

Mr Sugden: Yes, that effectively you replace the fuel duty with a road user charge.

Q156 Mr. David Clelland: The Committee visited the Netherlands and we looked at the proposals they have there for road pricing. This is basically in line with what you have been saying about replacing one tax with another. Have you studied the proposed system over there, which is basically to abolish all vehicle excise duties and taxes and replace them with a road pricing tax per mile?

Mr Sugden: We have not studied that in great detail but obviously the suggestions for road user pricing in the Netherlands and in other parts of the world have formed part of our view.

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Q174 Mr. David Clelland: How do the taxes and charges on road users in the UK compare with those in other European countries? Presumably you know that the freight industry is always making complaints about not being directly represented in the industry on the charges in Europe vis-à-vis the charges here in the UK and the advantages and disadvantages of each. Have you had any comments on that?

Mr Sugden: We have certainly had a number of hauliers alert us to the variants between the cost of fuel on the Continent and the cost of fuel in the UK, and particularly where it is possible for hauliers to fill up on one side of the Channel and effectively do a week’s work or two or three days’ work in the UK, go back to lower prices. That is the competitiveness comparison there rather than necessarily the whole scale taxation structure.

Q175 Mr. David Clelland: Is that to some extent offset by the road charges which hauliers in, say, Germany have to pay?

Mr Sugden: Quite possibly but what we have often seen is hauliers from different parts of the European Union and further field doing substantial freight working in the UK.

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Q179 Mr. David Clelland: On that point, I hear what you are saying about whether local road charging is appropriate or not, but in your evidence you say that road pricing should form a coherent part of the local transport infrastructure and revenue-raised should not just be absorbed in the general tax revenue. I presume you are there talking there about local road pricing rather than a national road pricing scheme.

Mr Sugden: Yes.

Q180 Mr. David Clelland: It appears from that comment that you do believe that a local road pricing scheme would be beneficial in terms of local transport, or could be?

Mr Sugden: It certainly could be and I think the feedback that we have had from our members is that there is no fundamental objection to local road user charges, provided it delivers the effects intended.

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Q190 Mr. David Clelland: Is the Highways Agency particularly helpful or unhelpful in terms?

Mr Sugden: We have certainly had our difficulties in the past in terms of the Highways Agency being persuaded of the economic benefits, particularly of planning decisions that would support the North East economy. I think there is an opportunity that unfortunately has now been lost, which was through the sub-national review, where there was originally a compulsion on Network Rail and the Highways Agency to work with regional bodies to support the economic development of the region, but that opportunity has been watered down to the point where it is negligible. We have strongly urged that there is an obligation on central government departments and their agencies to work very closely for the benefit of regional economic development.

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Q199 Mr. David Clelland: Presumably you do accept that it is reasonable for government to levy taxes and charges on the haulage industry, if only to help the infrastructure let alone government expenditure. Is it just the level of charges and taxes you are concerned about or is it about the juxtaposition of UK industry vis-à-vis the European haulage industry?

Mr Chapman: I do not think the industry has any problem with paying its external costs. Our concern is about ensuring that all operators using the road networks pay their way too, and hence the point that you make about foreign hauliers is a good one. The other issue of course is that road freight transport does not operate in isolation; it competes against rail freight. It is important, if we are creating a framework of internalisation and external costs for road freight transport, that those principles should be applied to rail freight as well.

Q200 Chairman: Is there a case perhaps for industry to improve its efficiency through better routing and higher load factors?

Mr Chapman: There has been a lot of evidence over the last 20 or 30 years that industry has been raising its game and continues to do so in terms of its logistics efficiency. The best measure of logistics efficiency, in my book at least, is the relationship for instance between the product and tonne kilometres. For the last ten years, there has been a breakdown in the relationship between those two measures with GDP for road rising at about 2/2.5% per year and tonne kilometres rising by about 1% per year. We are achieving a lot more economic growth with only a little bit more growth in activity

Q201 Mr. David Clelland: Did the recent period of high fuel prices concentrate minds to a large extent in the haulage industry? Were there efficiency gains as a result of that and have they continued now that the prices have come down?

Mr Chapman: The problem with the high oil prices is that nobody saw it coming, and so really hauliers were playing catch-up the whole time in terms of trying to offset spiralling input costs and trying to recoup those additional costs through the rates that they were charging. They were having almost to go back to their customers on a fortnightly or monthly basis to revise their charges upwards. The instability that we had over the last year I do not think was sufficiently robust in terms of creating a new stable level of fuel price to engender as step change in logistics efficiency. I think it was a short-term blip in costs which created a lot of pain for the haulage industry, but I do not think that blip in itself created a sea change in approach, not least that obviously for a sea change approach a lot of investment needs to take place. If you are paying a lot more money in fuel prices and you are stretching your cash-flow in so doing, then that money is not for investment.

Q202 Mr. David Clelland: Does that mean that if the increased cost of fuel is merely being passed on to customers, there is not a great incentive to improve efficiency?

Mr Chapman: I believe that there is because the haulage industry is a deregulated industry in the UK. It is intensely competitive and simply relying on the falling price of oil to achieve competitiveness is not going to win you contracts. The only way to win contracts in haulage is to be better than your competitor and the only way to do that is to reduce demands in travelling and reduce your resource.

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Q205 Mr. David Clelland: Would you welcome a national road pricing scheme for the haulage industry if the revenues raised were spent directly on the road infrastructure?

Mr Chapman: I think we would welcome an introduction of national road user charging irrespective of where the revenues were spent. If they were spent on the road network, then all well and good, but I think the competitiveness pressure that the Committee was talking about at the previous evidence session is a major factor in the day-to-day operations of many road hauliers. An introduction of road pricing or road user charging to try to address the competitiveness problems in differentials in fuel duty between the UK and the rest of Europe would be a very welcome move indeed.

Q206 Mr. David Clelland: So you are saying that road pricing would be in compensation for a reduction in taxes elsewhere?

Mr Chapman: Yes. UK fuel duty at around 50 pence a litre is about twice the EU average and around about twice the EU minimum. FTA believes that there is a lot of headroom for the Government to make use of in reducing fuel duty and offsetting that fuel duty reduction by a distance-based charge.

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Q227 Mr. David Clelland: Mr Lewis talked about £40 billion being raised in motoring taxes and only £8 billion being invested in roads. The Retail Motor Industry Federation has figures of £31.4 billion and £7 billion, but we will not argue about the money. That point seems to be made quite a lot. Surely you are not suggesting that road taxes ought to be reduced from the £40 billion down to £7 billion or £8 billion, or, indeed, that £40 billion should be spent on the road infrastructure?

Mr Lewis: First of all, some of the gap is that, because we represent the business sector, we include the cost of benefit in kind motoring taxes as well, rather than just the transparent. The real issue is that if these are to raise general taxation then we should be transparent about that and be upfront about it, and not hide behind the fact that they are for the costs of motoring - because they are not, they are to raise general taxation.

Q228 Mr. David Clelland: Do you think that is the impression that people are giving out there, that this £40 billion is spent on the roads?

Mr Lewis: Yes. Tax has to be raised, hospitals have to be built, and people have to be paid.

Q229 Mr. David Clelland: What do you mean by transparent? Surely everybody understands that. It is not a secret, is it?

Mr Lewis: I do not believe that people understand that the amount they pay to own a car - not necessarily to use it, but to own it - is hypothecated off into other areas.

Q230 Mr. David Clelland: Really?

Mr Lewis: I do not think they believe that, no.

Mr Hulf: I would certainly endorse that. Our members are the franchise dealers and the independent garages, and the feedback which they get is concern that they are paying all this money in tax and why is the Government not just more candid and quite straightforward: "Yes, we need to raise general taxation, of which your slice is only going to be £x." It is often hidden within more sweeping statements: environmental taxes, green taxes. Actually it is general taxation, and it is the less than candour which the Government has which produces irritation amongst individual motorists.

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Q238 Mr. David Clelland: Do you have any views on road pricing proposals or road congestion charging in terms of methods of raising taxation, improving the road structure, or, indeed, changing the tax regime by introducing road pricing rather than having the other taxes.

Mr Lewis: We have a view. I think that is interesting terminology there because I would be interested in whether the question is additional charges or a different way of charging. Our view, representing business motoring, is that with additional charges there will always be problems - going back to my issues of distrust, going back to the issues almost of the blackmail of Manchester: "We’ll give you this if you get that from the motorist" when the motorist is already paying significant amounts more than the cost of driving on the road. All of the taxes we are talking about in no way determine any incentive to drive on the road at a different time. I pay the same VED, I pay the same fuel duty as any of us in this room, so I have a right to drive on the road at any time, at the same time as anyone in this room. We do not use that on the public transport system. We have a different way of managing demand on the public transport system. Perhaps we should - and maybe lorries are the entry point, because we also supply the vehicles to the freight sector - make the way for a national road pricing system - not an additional tax but an alternative way of taxing - and perhaps we should look at depoliticising that as well. Maybe we should need an independent body instead of a political party to look at that. It transcends elections and political parties because it is a long-term strategy. I was on the Lorry Road User Charge programme. The whole industry was in favour of it. Technology today would deliver it for us at a lot cheaper cost than before, and that would probably start for the first time to use the tax system to manage the demand - because we do not today. Fuel duty is very simple but in no way does it manage demand on the network, and that is what we have to start to look at now.

Mr Hulf: This road pricing or congestion charging is a very blunt instrument which is currently used and there is no flexibility. The analogy, surely, is with a mobile telephone: wholly different rates are charged for different types of usage. With our modern IT systems, if we are going to have a more progressive system of road pricing then it must be much more tailor-made to the demand, and people will be able to have a much greater choice which will therefore influence the patterns of behaviour on roads.

Q239 Mr. David Clelland: Have you studied the proposals that the Netherlands are particularly looking at at the moment?

Mr Hulf: No, we have not.

Q240 Mr. David Clelland: They are very much in line with what Mr Leech is saying, in terms of replacing current intentions for the per mile national road pricing scheme, which can then be varied at various times of the day to take account of congestion. That is the sort of thing you were referring to, is it?

Mr Lewis: That is absolutely right, Mr Clelland, yes.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

The full transcript may be read here.