Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence


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:

    Commercial diesel

    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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