Memorandum by the Road Haulage Association
Ltd (RH 22)
1. INTRODUCTION
The Road Haulage Association (RHA) was formed in
1945 to look after the interest of haulage contractors in various
areas of the country, in effect, amalgamating local organisations
that had been established. The association has subsequently developed
to become the primary trade association representing the hire-or-reward
sector of the road transport industry. There are now some 10,000
companies in membership varying from major companies with over
5,000 vehicles down to owner-drivers.
2. BACKGROUND
TO THE
INDUSTRY
The road haulage industry plays a pivotal role
in the UK economy carrying some 81 per cent of all domestic freight.
In 1998 this amounted to:
— 1,041 million tonnes carried in hire-or-reward
vehicles;
— 589 million tonnes carried in own
account operators' vehicles;
— a total of 1,630 million tonnes moved
by road transport;
— 152 billion tonne kilometres on road
transport;
— an average length of haul of 47 kilometres
for rigid vehicles, 135 kilometres for articulated lorries and
93 kilometres as an overall average.
There are around 111,199 holders of operating
licences and between them they operate some 419,000 vehicles over
3.5 tonnes gross vehicle weight. About 70,000 of these are 38
tonne vehicles.
It is worth noting that twenty years ago approximately
500,000 vehicles carried a smaller volume of traffic, reflecting
the very considerable efficiency gains that the industry has made.
Road transport, vehicle manufacturing and related industries employ
well over 2,000,000 people; 3.8 per cent of the total population
and more than 8 per cent of all employed people.
Moreover the industry makes a major contribution
to the exchequer through Fuel Duty, Vehicle Excise Duty (VED),
Operators' Licence fees as well as Value Added Tax (VAT), income
tax paid by employers, corporation tax and council tax on premises.
3. THE ROLE
OF ROAD
HAULAGE
Modern day lifestyles are heavily dependent
on the ready availability of efficient freight transport. Without
it retailers would not be able to offer the range of produce that
they do throughout the year at acceptable prices (items that previously
would have been available only on a seasonal basis) and manufacturers
costs would be higher, leading either to more expensive goods
for the consumer or to the loss of business to competition from
abroad. Society and Government must accept that if they wish to
reduce the movement of lorries on the roads, they must be prepared
to accept significant changes to their lifestyles. That said,
the road haulage industry is constantly seeking new ways to improve
its efficiency and effectiveness and to reduce the impact that
it has on the environment and on the community in general.
3.1 Safety
Safety is of paramount importance to everyone
involved in the transport industry. Successive Governments have
made great efforts to reduce the number of people killed or seriously
injured on our roads and this should remain a key priority. The
haulage industry is very heavily regulated in this area: vehicles
have to meet very stringent safety standards; speeds are restricted;
operators are regularly checked on their maintenance records and
general management practices; drivers must have special licences
to drive their vehicles and [even before the introduction of the
Working Time Directive] their working times are heavily regulated.
The vast majority of hauliers respect these
rules and regulations. But as with any other industry there are
inevitably a few "cowboy" operators who routinely flout
the law. Such illegal operators not only damage the reputation
of the industry as a whole and pose a safety risk to other road
users, they also deprive legitimate operators of business. The
RHA believes therefore that enforcement of these regulations is
essential and has for a long time supported moves to introduce
further powers such as the ability to impound vehicles that are
being operated illegally.
3.2 Efficiency
Fuel efficiency is a key issue both for haulage
companies and for the Government (see also section 4). Both parties
wish to see a reduction in the amount of fuel used—the Government
primarily because this will reduce emissions and the transport
operator because it will also reduce his costs. For many operators—particularly
in the hire-or-reward sector—fuel represents the single
biggest cost to his business. Achieving only an extra 0.3 miles
per gallon therefore could be the difference between profit and
loss.
As a result companies are increasingly introducing
measure to reduce fuel consumption—for example, providing
advice and training for drivers on techniques to reduce fuel consumption;
taking extra care in planning journeys to ensure the most efficient
routes are taken; and frequently co-operating with other companies
so as to reduce fuel consumption and empty running. Indeed the
RHA in conjunction with its business partner runs an Internet
Backload Service through which members can advertise or search
for return loads between certain areas of the country.
3.3 Modal shift
Contrary to popular opinion, the road haulage
industry is not opposed to the increased use of rail freight.
Indeed, many hauliers are increasingly involved in logistics and
distribution rather than simply road haulage and already make
use of rail where it makes sense for them to do so. The RHA therefore
supports the Government in its efforts to increase the amount
of freight going by rail.
However, it is important to be realistic about
the extent to which an increase in rail freight would lead to
a decrease in road freight. The majority of journeys, even where
part of that journey is made by rail, begin and end by road. This
is likely to remain the case for the foreseeable future. For this
reason, (and for others set out in section 4) efforts in this
area must focus on improving the attractiveness of rail rather
than penalising road freight.
4. IMPACT OF
TAXATION POLICIES
As a consequence of current exchange rates and
successive Governments' strategies of annual above inflation increases
in fuel duty, the UK has by far the highest diesel duty rate in
the whole of the EU. In addition, rates of Vehicle Excise Duty
for the heaviest lorries (40 tonnes since 1 January 1999) are
up to 12 times more than that of our nearest European rival. The
following table compares the rates of diesel duty and vehicle
excise duty for the UK and the rest of the EU (figures are averages
for 1999. The actual rate for the UK is currently 50.21 p/l. Ultra
Low Sulphur 47.21 p/l).
| EU Member State | Fuel Duty (p/l)
| VED (£) |
| United Kingdom | 50.2/47.2
| 5.750 |
| Italy | 25.5
| 570 |
| France | 25.3
| 437 |
| Sweden | 24.9
| 1,816 |
| Netherlands | 24.0
| 602 |
| Germany | 22.3
| 1,671 |
| Eire | 21.8
| 1,242 |
| Denmark | 20.3
| 448 |
| Finland | 20.1
| 974 |
| Belgium | 19.2
| 835 |
| Austria | 19.1
| 1,909 |
| Portugal | 18.7
| 277 |
| Spain | 17.5
| 295 |
| Luxembourg | 16.7
| 322 |
| Greece | 15.4
| 380 |
The effect of the fuel duty strategy and the high levels
of VED only serve to undermine the international competitiveness
of the haulage sector. The progressively higher tax base is seriously
eroding profit margins (which in any case are usually no more
than about 3 per cent) and is forcing operators to consider the
merits of registering their businesses and fleets outside of the
UK—ie "Flagging out".
4.1 Fuel Duty
Haulage companies have always been concerned about fuel duty
levels because fuel can represent their single biggest cost—often
as much as 40 per cent of their total business costs. Until 1998,
the difference between UK fuel duty rates and continental rates
only presented a significant problem for those hauliers operating
internationally on a regular basis, since they were competing
for those contracts with hauliers based outside the UK. In an
attempt to minimise the disadvantage they face, hauliers involved
in such contracts have adapted their business practices and now
purchase nearly all of their fuel abroad. Whilst this helps the
haulier by improving his competitive position, it does have obvious
adverse consequences for the UK Exchequer in terms of fuel duty
lost.
Cabotage
The difference in duel duty rates became a serious threat
to all UK goods vehicle operators from July 1998, following the
removal of all EU cabotage restrictions. This gave continental
hauliers the right to seek domestic business in the UK, competing
against UK hauliers. The much lower price of fuel available to
continental-based hauliers has given them a competitive edge.
Continuing increases in fuel duty will simply widen this advantage.
Historically, only a relatively small proportion of goods
is carried on domestic journeys by vehicles registered outside
the UK. This fact had led the Government to the mistaken conclusion
that the threat posed by the removal of cabotage restriction and
higher fuel duties was being over estimated. However, as industry
representatives have argued strongly through the Road Haulage
Forum, this assumption fails to take account both of the amount
of cabotage work that was carried out in the UK prior to their
abolition, without permits, and also of the effect of an ever-widening
fuel price differential. As fuel on the continent becomes cheaper
(relative to the UK) domestic operations within the UK will become
increasingly attractive since continental based hauliers will
find it easier to offer lower rates compared to UK hauliers.
The threat to domestic hauliers from continental-based operators
using cheaper fuel is real. A typical tractor unit can legally
carry enough fuel to travel over 2,000 miles. On average that
would represent close to a week's normal work for a UK-based unit.
This problem is even more evident in Northern Ireland (see Memorandum
to Northern Ireland Select Committee attached). Because only a
land border separates the two countries, foreign-registered vehicles
have no difficulty whatsoever in filling their vehicles with fuel
purchased across the border and then operating in Northern Ireland.
Of course many Northern Ireland based hauliers also buy all of
their fuel south of the border and evidence suggests that the
revenue losses to the Exchequer from this particular area alone
are very significant. The RHA believes that many Northern Ireland
hauliers will be particularly attracted to "Flagging out"
their vehicles to Southern Ireland because they will reduce their
operating costs significantly whilst suffering very little change
to their operations.
Impact on UK Haulage Industry
Concern about this issue has been at such a high level within
the haulage industry that the RHA commissioned research from the
Centre for Economics and Business Research Ltd (CEBR). The CEBR
was asked to examine the economic consequences of the widening
gap between the UK and European duty rates and to look at the
feasibility of a scheme designed to achieve a level playing field.
The results of this work are contained in the reports "Rebalancing
UK Motor Fuel Duties" and "Fair Play On Fuel",
copies of which are attached. Essentially these reports show that
if action is not taken, thousands of jobs will be lost in the
UK haulage industry as contracts are awarded to foreign registered
operators. In addition the Government faces the loss of billions
of pounds in GDP as well as over £1 billion in tax revenue
as fuel is purchased abroad.
Impact on the Environment
The Government has justified the fuel duty escalator by the
need to inflate prices to bring about a reduction in fuel use
and so contribute towards the reductions in carbon dioxide necessary
to meet international obligations on global warming. However,
despite many years of sustained increases in real duty rates,
there is no evidence that the policy is having any impact on traffic
levels or CO2 emissions.
Ironically, the price of fuel (at least within the haulage
sector) does not affect the number or length of journeys made,
nor the location of businesses relative to their markets. Manufacturers
and retailers need to transport their goods whatever the price
of fuel. But the fuel duty policy over many years has had no impact
on foreign-registered hauliers since they do not purchase their
fuel in the UK (because it is significantly cheaper in every other
EU country). Thus the UK finds itself in the paradoxical situation
whereby the same number of journeys are being made within the
UK, with at least the same amount of pollution being emitted,
but with an increasing proportion of them being made by continental
operators paying continental taxes. It is important to note that
in the UK we use Ultra Low Sulphur Diesel; we are the only country
in Europe to do so. Therefore pollution levels caused by continental
hauliers using fuel from the continent will actually be higher.
The same argument applies to the assertion that the rail
freight market would be disadvantaged by a reduction in costs
for road freight. Again, this would be likely to happen in any
event, because foreign-based hauliers will be able to offer rates
that neither the UK rail freight operators nor UK hauliers will
be able to meet.
4.2 Vehicle Excise Duty (VED)
VED currently accounts for approximately 4 per cent of the
standing costs of a heavy goods vehicle. Minimum rates are prescribed
by EU Directive 93/89 but, as the table above shows, UK levels
far exceed these and the levels set by most other Member States.
UK VED rates are calculated by taking account of the wear and
tear contribution made by lorries to the infrastructure.
Current methodologies for calculating VED result in rates
that more than cover the road track costs of HGVs.
The Road Haulage Association calls for an urgent revision
in the method of calculating VED. The Government must recognise
that, in the same way that fuel duty has no impact on foreign
hauliers, current VED penalises UK hauliers using UK roads whilst
allowing foreign-registered hauliers' vehicles to use (and inflict
wear and tear on) UK roads free of charge. This is particularly
important when considering the heaviest vehicles—40 tonne,
5 axled lorries—which are of the type most widely used by
continental operators entering this country on an international
journey. In the UK, these vehicles are currently subject to an
annual rate of VED of £5,750—up to 12 times more than
our nearest European rival pays for the same vehicle.
4.3 Flagging out
As mentioned above, the consequence of the Government's current
taxation policies is forcing many UK hauliers to consider registering
their businesses and vehicles abroad in order to benefit from
the lower rates of VED and fuel duty. Initially, Government representatives
were sceptical about the attractiveness of such a scheme. They
believed that other elements of taxation (eg corporation tax)
which were lower in the UK would balance out the higher levels
of direct taxes (fuel duty and VED). However, this assumption
underestimated the importance of these elements in the overall
costs of operating a haulage business. Indeed, following the setting
up by Government of the Road Haulage Forum, research has concluded
that the typical annual operating costs for a 40 tonne (2+3) articulated
vehicle are: £85,738 in the UK; £77,053 in France; £83,204
in Belgium; and £79,418 in the Netherlands.
To date, more than 300 companies have "Flagged Out".
This figure represents in excess of 3,000 vehicles which, in turn,
represents a significant sum in terms of revenue lost to the Exchequer.
5. REDRESSING THE
BALANCE
The RHA believes that certain changes to Government policy
are required if the haulage industry is to be saved from its current
predicament and the Government is to prevent the loss of thousands
of jobs and millions of pounds of revenue.
5.1 The Essential User Rebate
Full details of the Essential User Rebate, or EUR, are outlined
in the reports "Rebalancing UK Motor Fuels" and "Fair
Play On Fuel" which are attached. But essentially the principles
of the scheme are as follows: Essential Users (ie operators falling
within the Operator Licensing system) would be able to claim a
rebate on fuel used for business purposes equivalent to the difference
between the UK rate and the EU average. Eligible mileage would
be verified through scrutiny of the existing tachograph system
and only those operators complying fully with all relevant regulations
would be eligible to claim.
This would have the advantage of removing the competitive
disadvantage suffered by the UK and removing the negative impacts
on the UK economy and on tax revenues. In addition, there would
be significant road safety benefits since the opportunity to claim
a rebate would be a substantial incentive to companies to comply
with all the relevant requirements. Thus operating and safety
standards within the industry would be raised. The CEBR has conducted
further research in this area and believes it would be possible
for the scheme to be at least self-financing.
There is already a precedent for this type of rebate scheme.
As well as the existing FDR (Fuel Duty Rebate) for buses in the
UK, in January 1999 the French Government introduced a rebate
for hauliers purchasing their fuel in France. The scheme was subject
to a maximum of 40,000 litres and applied to vehicles over 12
tonnes. The specific reason given for introducing the scheme was
a concern about the impact on the French haulage industry of higher
diesel prices in France compared to their neighbours.
Whilst the Essential User Rebate is the RHA's preferred option—and
one which we believe would be relatively simple to administer—we
certainly would not rule out other options designed to achieve
the same objective ie to bring the UK diesel rates into line with
those of our European competitors. Other options that have been
suggested include introducing a "commercial diesel",
and treating fuel duty as a tax-deductible business expense:
The creation of a separate diesel fuel channel intended for
commercial vehicles only would allow different duty rates to be
applied depending on end use. About 80 per cent of diesel fuel
used in commercial vehicle fleets is bought from bunkered supplies,
stored either at vehicle operating depots or in commercial bunkering
facilities. "Commercial Diesel" (ie diesel at non-escalated
rates of duty) would be available only from these facilities and
could be marked with appropriate coloured dye (green?) so as to
aid duty enforcement.
Sales of Commercial Diesel from retail filling stations could
initially prove difficult because of the lack of a separate dispensing
infrastructure for a second diesel channel. This is likely to
be a short-term problem, however, until market demand makes it
attractive to fuel companies to invest in the necessary equipment.
Fuel duty as a tax-deductible expense
Fuel duty could be rebated to commercial vehicle operators
by treating it as a tax deductible business expense. Claims would
need to be supported by receipted invoices or other appropriate
fuel transactions. This would be undertaken at the time of annual
or periodic company returns and settlement with the Inland Revenue/Customs
and Excise. An alternative would be to use the existing VAT payment
and collection system.
5.2 Vehicle Excise Duty
As outlined above, the RHA calls for an urgent revision in
the method used by Government to calculate VED. We believe that
action must be taken to ensure that UK operators are no longer
unfairly penalised as compared to their European competitors.
Whilst we appreciate that it is not possible simply to charge
foreign-registered vehicles to enter the country, there are a
number of ways in which Governments can introduce charges that
apply to all vehicles using the roads in a particular country
eg the Eurovignette. Clearly such a scheme would do nothing to
redress the balance (and therefore would be unacceptable to the
RHA) unless any new changes replaced the existing VED scheme.
6. OTHER POLICY
CHANGES
6.1 Working Time Directive
We are concerned that the proposals are much more stringent than
those prevailing in other industries or transport sectors, for
no demonstrable reason and without adequate provision for derogation;
the night work provisions will seriously reduce efficiency and
cost-effectiveness in road transport and lead to greater use of
the already heavily congested roads during the day, and which
of course is contrary to current UK policy on maximising use of
existing infrastructure; do not provide sufficient scope for adaptation
to national and local circumstances or for derogations which the
specific sub-sectors of goods and passenger transport need; will
inevitably lead to divergent implementation in Member States;
and will see drivers gain additional employment to sustain their
existing pay levels making the whole concept of controlling and
regulating working time unenforceable. The RHA also wished to
include the provision 1(b)(i) of Article 18, in Directive 93/104/EC
to permit individual mobile workers to exceed the average of 48
hours if they agree to do so with their employer.
CONCLUSIONS
The UK road haulage industry plays an essential and integral
part in our everyday lives. Yet Government policies are—albeit
perhaps unintentionally—undermining the industry's ability
to survive. The RHA welcomes the establishment by the Government
of the Road Haulage Forum and we hope that this will lead to positive
action, very soon. If such positive action is not taken to address
this situation, thousand of jobs and hundreds of millions of pounds
will be needlessly lost to this country together with the destruction
of the UK road haulage industry as it exists today.
February 2000
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