Select Committee on European Legislation Fourth Report


VEHICLE EXCISE DUTIES AND TOLLS

3.   We consider that the following raises questions of legal and political importance, but make no recommendation for its further consideration at this stage:--

Department of Transport

(17578) -- --	Draft Directive on the application by Member States of taxes on certain vehicles used for the carriage of goods by road and charges for the use of certain infrastructure.
Legal base:	Article 75; co-operation; qualified majority voting. (The proposed legal base is disputed.)

Background
3.1  As an official text of this proposal is not yet available, we have considered it on the basis of an Explanatory Memorandum dated 4 November submitted by the Minister of State, Department of Transport (Mr Watts). An unofficial text has been made available to us by the Department.

  The proposal

3.2  In his Memorandum, the Minister tells us that the proposal will be concerned with the taxing and road use charging of heavy goods vehicles (HGVs) over 12 tonnes maximum gross weight. It is a replacement for Council Directive 93/89[6] which was annulled by the European Court of Justice on a procedural technicality, although its effects were allowed to continue[7]. The Commission has taken the opportunity to propose significant changes in the scope for Member States to charge HGVs for the use of roads, drawing on the principles outlined in the Commission Green Paper Towards fair and efficient pricing in transport[8], and to place additional constraints on Member States' freedom to determine rates of vehicle excise duty (VED) and equivalent taxes. The Commission's purposes are to strengthen the internal market by further harmonising the competitive conditions of operators and to seek to bring the taxes and charges levied on operators closer to the costs their vehicles impose.

  The revised proposals

3.3  The Minister tells us:
"The main changes from Directive 93/89 are:
(a)  the compulsory differentiation of VED according to vehicle engine emissions standards;
(b)  the setting of maximum rates of VED (which are well above the rates currently levied in the UK) as well as the minimum currently specified;
(c)  differentiation of (time related) user charges according to vehicle engine emission standards and the wear and tear imposed on roads, which is classified by their damage class;
(d)  the maximum user charges would range from 750 ECU to 2000 ECU a year, compared with the present figures of 1250 ECU for vehicles with 4 or more axles and 750 ECU for vehicles with 2 or 3 axles;
(e)  the specification of minimum rates of user charge (half the maximum) as well as the maximum where such rates are imposed;
(f)  permitting an additional element of charge in (distance-related) tolls, to allow for external costs, up to a maximum of 0.03 ECU per kilometre;
(g)  the possibility of Member States applying a surcharge, subject to maximum limits, for "sensitive routes" of up to a total of 0.5 ECU per kilometre for tolls and 15 ECU per day for user charges. The proposal prescribes the bread criteria for such routes and the mechanism for designating them."

  The legal base for the proposal

3.4  Although Article 75[9] is proposed as the legal base for this Directive, the Government considers that Article 99, which provides for harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation, should also be cited. Article 75 requires qualified majority voting and the application of the co-decision procedure; Article 99 requires unanimity in the Council. We have doubts over the use of a joint legal base, on which we comment below.

  Subsidiarity

3.5  The Minister does not consider that this proposal passes the test for subsidiarity and proportionality set out in Article 3b of the Treaty. He tells us:
"Two aspects of the proposal on vehicle taxes would unquantifiably restrict the Government's freedom to set taxation rates, viz. the maximum VED rates and the differentiation of those taxes by a minimum percentage according to engine emission standards. The Government does not see a clear single market case for Community action setting out detailed elements of tolls and user charges. The principle of subsidiarity implies giving Member States the freedom to decide their own levels and structure of taxes and charges, to reflect the varying costs of the road networks across Member States and environmental factors. The Commission's proposals are unduly prescriptive, and are not consistent with one of its stated objectives of allowing for greater differentiation of charges in line with costs. The proposal would restrict, rather that enhance, the ability to reflect local circumstances."

  The Government's views

3.6  The Minister's objections to aspects of the Commission's proposals are, as set out in his Memorandum:
"The provisions concerning VED would apply to all British-registered HGVs above 12 tonnes permitted gross weight. While the introduction in Directive 93/89 of minimum rates of VED is in keeping with the system of minimum VED rates operating in other EC excise duty directives, the proposed establishment of a maximum VED rate would conflict with the Government's long-held view that in general Member States should be free to determine their own tax structures and rates.
"The provision on tolls would apply to any Member State, including the UK, in which tolls are charged on motorways or roads with similar characteristics, bridges, tunnels and mountain passes. User charges are imposed at present in Austria and in a joint scheme (commonly known as Eurovignette) operated by Germany, Belgium, Denmark, Luxembourg and the Netherlands. Sweden has announced that, subject to the approval of its Parliament, it proposes to join the Eurovignette scheme in 1997.
"As explained in its memorandum[10] on the recent European Commission Green Paper Towards fair and efficient pricing in transport the Government accepts in principle that road users should pay at least the full economic costs they impose, including the cost to the environment. It does not consider that competition is distorted by divergences in the levels of transport-related user charges to the extent that they are related to the costs imposed by HGV's in each Member State. However, the inclusion of separate provisions for sensitive routes is unduly prescriptive. Member States should have a large measure of freedom in deciding how to charge for transport-related environmental costs in order to achieve national objectives and match national circumstances. If it is intended that this concept should be applied to the particular problems of protecting the Alpine region (in the context of negotiations between European Union and Switzerland over a land transport agreement) further analysis would be required.
"The Government strongly opposes the proposed legal base. The Treaty enshrines the principle that EC tax decisions should be taken unanimously and the Government wants to preserve that principle. Furthermore, the Government believes that tax matters are best dealt with at Member State level except where there is a clear single market case for harmonisation."

  The cost of the proposal

3.7  The Minister's Explanatory Memorandum explains that it is not possible to quantify the financial burden which this Directive would impose, given that it would lead to less polluting lorries paying less in taxes that those with higher emission levels and the extent to which similar vehicles used routes which were subject to user charges, and the way in which Member States take advantage of the range of tolls or user charges permitted by the proposed Directive.

  Preliminary consideration by the Council

3.8  The Minister says in his Memorandum:
"The Transport Council held an orientation debate on the proposal on 3 October. There was almost unanimous opposition to the proposal to cap VED by specifying a maximum figure, and considerable opposition to the proposal to differentiate both this tax and the user charge according to emissions standards. Similarly, the proposed introduction of additional charges in respect of external costs was judged to be premature pending full consideration of the Commission's Green Paper on the issue, and the proposal for designating sensitive routes bureaucratic. Most Member States considered that, for the time being, the Council should confine itself largely to reproducing the content of the existing Directive. Further measures should await the development of policy on charging vehicles for the external costs they impose, and the methodology by which to do so, and developments in electronic technology for charging vehicles. A majority of Member States supported the UK view that Article 99 (unanimity) should be included in the legal base."

  Conclusion

3.9  We have reported on this in the absence of an official text because the Department has provided us with a copy of a working draft, and because we consider that the issues raised are sufficiently important to justify an early report.
3.10  The subject of road charges for commercial vehicles has always been contentious. Our predecessors considered the proposals which eventually led to Directive 93/89/EEC on no fewer than seven occasions, and took evidence[11] from the Road Haulage Association and the Freight Transport Association.
3.11  The Government's objections seem to us to be formidable, and we consider that the proposals raise matters of both legal and political importance. We are not convinced that the use of Articles 75 and 99 as joint legal bases for this proposal would be appropriate.

3.12  The ECJ decided in Case C-300/89 Commission v Council that it was not permissible to have recourse to a dual Treaty base where one of the two Articles cited provided for qualified majority voting under the co-operation procedure (in that case Article 100a) whereas the other provided for adoption by unanimity (in that case Article 130s). The Court said that an essential element of the co-operation procedure would be undermined if, as a result of simultaneous reference to Articles 100a and 130s, the Council were always required to act unanimously. At the time when Directive 93/89 was adopted, measures adopted under Article 75 were not subject to the co-operation procedure and there was, therefore, no legal difficulty in combining that Article with Article 99, which requires unanimity. However, the co-operation procedure was introduced into Article 75 by the Treaty on European Union and the adoption of the dual legal base of Article 75 and 99 for the proposed Directive would be inconsistent with the ruling of the ECJ cited above.
3.13  We therefore ask the Minister:
(a)  how, in view of the Court's ruling, he considers that a dual legal base could be justified; and
(b)  whether it would be more prudent to press for one of the alternatives he suggests: either using Article 99 as the sole legal base or splitting the measure into two, one dealing with taxes and the other with road user charges.
3.14  Because of the conclusions of the orientation debate in the Council on 3 October, we feel that any debate at Westminster would be premature before the proposals are seen to be in a form which has at least the possibility of being accepted. We ask for further information in due course, together with an official text. Meanwhile, we do not clear the document.

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6.  OJ No. L 350, 31. 12. 1994, p.49. Back

7.  Case C-21/94, European Parliament v Council. Back

8.  COM(95)691. We considered this on 27 March 1996: (17011) 5179/96; see HC 51-xiv (1995-96), paragraph 1. We considered that it raised questions of legal and political importance and recommended a debate. The debate took place in European Standing Committee A on 22 May 1996. Back

9.  Article 75 is concerned with measures to implement a common transport policy. Back

10.  see footnote 3. Back

11. (10050) 4227/88; see HC 43-xxix (1987-88), paragraph 6 (15 June 1988). Back

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Prepared 3rd December 1996