Memorandum by the Freight Transport Association
(RH26)
INTRODUCTION
FTA welcomes the Committee's inquiry into the Road
Haulage Industry. This vital part of the nation's transport industry
is enduring enormous economic pressure from the highest tax rates
in Europe, the emergence of much cheaper foreign competition and
a chronic shortage of skilled staff. Its job of moving 46 per
cent of the nation's goods is becoming more difficult due to increasing
road traffic congestion. It is the subject of condemnation by
environmentalists, of regulation and bureaucracy by Governments
and the European Commission, and British hauliers operating abroad
are frequently the victims of blockades and sometimes physical
attacks from protestors involved in disputes which are nothing
to do with transport, never mind the hauliers affected.
The UK road haulage industry is misrepresented,
misunderstood and therefore misjudged by the public. Yet it is
part of the most efficient national logistics operations in the
world. It has seen dramatic improvements in efficiency in the
past 15 years and has expanded its role to include many other
aspects of the handling and distribution of goods. The enormous
range of goods now available to British consumers off the shelf
or at very short notice is sustained by the sophisticated and
flexible logistics systems that are operated by retailers and
manufacturers. An efficient and modern road haulage sector is
a vital part of these supply chains and is essential to the efficient
functioning of the modern industrial economy.
FTA looks to the Committee to recognise the
role and worth of the road haulage industry and its contribution
to the industrial economy of the country.
The Road Haulage Industry
The road haulage industry consists of businesses
which offer road freight transport services on a hire-or-reward
basis. The vital statistics of this part of the economy are:
— Numbers of hauliers: 25,900
— Numbers of heavy goods vehicles operated 178,133
— Proportion of inland freight carried
by road hauliers 64 per cent
— People employed 263,000
— Average profitability: 3 per
cent
— Average return on assets: 1.9
per cent
A key factor contributing to the development
of the UK haulage sector is that it has been liberalised far longer
than in any other country in the EU. This took effect from the
introduction of the Transport Act 1968 where a system which regulated
market access was replaced by a liberalised market licensed by
safety standards. Wide ranging environmental controls were added
in the mid 1980s. Similar systems are now wide-spread in Europe
and many aspects are now harmonised and legislated for by the
European Union. With very few exceptions an Operators Licence
is required for the operation of any vehicle with a gross weight
of more than 3.5 tonnes— ie. bigger than a Transit van.
A liberal road haulage market has allowed many
firms to develop related services, such as warehousing and distribution.
Many of these businesses have grown through acquisition and merger
into national, and in some cases international, concerns offering
a complete range of logistics management services. Other, smaller
firms have concentrated on particular commodities and niche markets
where specialised vehicles or skills are required.
The road haulage industry utilises about 178,000
vehicles, split roughly equally between rigid and articulated
types.
The role of Road Haulage in the Economy
The road haulage sector plays a central role
in the nation's supply chains. The ability of British businesses
to distribute food and other consumer items efficiently and reliably
to retail outlets and the movement of industrial and wholesale
commodities between businesses depends on a flexible and resourceful
haulage market.
Environmental and Safety Record
The O licensing system is the public guarantee
of a safe and responsible road haulage sector. It provides for
open access to the market whilst ensuring minimum standards of
operation are adhered to and monitored. It allows for periodic
review and disciplinary action to be taken if licensing conditions
are breached and the public have the opportunity to make representations.
It is policed and administered by independently appointed Traffic
Commissioners who are accountable to the Secretary of State for
the Environment, Transport and the Regions.
FTA works closely with DETR, the Traffic Commissioners
and their staff to ensure the system functions in an efficient
and effective way. Generally the system works well and its strengths
and benefits are recognised and valued by all responsible operator
of goods vehicles. A number of opportunities to improve its efficiency
and effectiveness are currently under discussion and are described
in this submission.
The environmental impact of goods vehicles continues
to fall due to the introduction of newer less polluting vehicles
and more efficient distribution systems which optimise vehicle
usage. The recent report of the Government's Cleaner Vehicles
Task Force confirmed the expectation that noxious emissions from
road transport, including goods vehicles, would fall dramatically
as newer vehicles meeting tougher EU emission standards were introduced
over the next 10 years.
This reduction results from the phased introduction
of progressively lower new exhaust emission standards by the European
Union. These have been set following widespread research and consultation
between fuel companies, vehicle manufacturers and Governments
in the "Auto Oil" programme.
2. THE IMPACT
OF TAXATION
By far the most pressing problem in the road
haulage industry is the very high levels of fuel duty and Vehicle
Excise Duty (VED) that have been introduced in recent Budget decisions.
Not only are these punishingly high in absolute terms but they
are also far in excess of rates that prevail in the rest of Europe.
In the Budget Statement in March 1999 the Chancellor
dealt a further double blow to the road haulage industry. In addition
to an unprecedented 11 per cent increase in fuel duty the Chancellor
also announced a new VED rate for 40 tonne vehicles running on
five axles. This configuration is the most widely used type of
vehicle by continental hauliers and was permitted for use in the
UK from 1 January 1999. Typical VED rates for this type of vehicle
abroad are a few hundred pounds. In March last year the rate for
the UK was set at a staggering £5,750.
| Average Annual Fuel Duty and VED paid For a 40t gtw (2+3) articulated vehicle as at December 1999
|
| EU Member State | Fuel Duty
(£)
| Vehicle
Excise Duty
(£)
| Total
(£) |
| Austria | 7,653
| 1,909 | 9,563
|
| Belgium | 7,663
| 835 | 8,498
|
| Denmark | 8,312
| 448 | 8,760
|
| Eire | 8,721
| 1,242 | 9,962
|
| Finland | 8,050
| 974 | 9,024
|
| France | 10,078
| 437 | 10,515
|
| Germany | 9,186
| 1,671 | 10,857
|
| Greece | 6,676
| 380 | 7,056
|
| Italy | 10,312
| 570 | 10,882
|
| Luxembourg | 6,680
| 322 | 7,003
|
| Netherlands | 9,142
| 602 | 9,744
|
| Portugal | 6,497
| 277 | 6,774
|
| Spain | 7,130
| 295 | 7,425
|
| Sweden | 8,133
| 1,816 | 9,949
|
| United Kingdom | 19,767
| 5,750 | 25,517
|
The rate of fuel duty in the UK is 2.5 times higher than
the EU average figure. Although the headline rate of increase
has laterly been at 6 per cent, the Committee should note that
after inflation and other differentials had been added the overall
increase in fuel duty at the last Budget was 11.2 per cent. As
fuel duty comprises 80 per cent of the selling price of diesel
fuel this translated into a 10 per cent increase in the costs
of fuel to goods vehicle operators.
The effect of these increases has been to require hauliers
to approach their customers year after year seeking rate increases
in the order of 7½ per cent in an economy where factory gate
prices are static or even falling and consumer inflation is just
2 per cent. Faced with the inability to pass costs on, industry
has been reluctant to pay all of these increases and the effect
of this has been to squeeze the profitability of hauliers to the
point where many are questioning the viability of their businesses.
Worse still, these increases have come at a time when the
strong pound is generating many import movements into the UK by
foreign registered vehicles. Once in the UK foreign operators
are finding that their marginal cost of undertaking domestic work
in the UK is significantly less than the incumbent operator. The
numbers of foreign vehicles entering the country has risen dramatically
in the last two years.
The Government has been studying the comparative costs of
road haulage in the UK and elsewhere in the EU with industry and
trades unions in the Road Haulage Industry Forum, which was established
following representations from industry following last year's
Budget. Detailed analysis of the component costs of goods vehicle
operation in the UK and abroad have identified that UK operators
can be undercut by up to 10 per cent by continental operators,
due primarily to higher fuel costs and VED rates. This calculation
takes account of the higher social costs that prevail in most
of the EU.
| Comparative Operating Costs for 40 te gvw (2+3) articulated vehicle Operated in the UK
|
| | UK
| France | Belgium
| Netherlands |
| Total Operating Costs (£) | 85,738
| 77,053 | 83,204
| 79,418 |
| Index (UK=100) | 100
| 90 | 97
| 93 |
There has undoubtedly been some "cabotage" business
won by visiting hauliers. However, the main effect of the presence
of large numbers of visiting vehicles has been to prevent fuel
cost increases from being passed on in the fear of triggering
a loss of business to lower-taxed foreign competition.
The Government has persistently refused to acknowledge the
validity of these findings publicly. This is giving hauliers the
impression that Government is not listening to their case, despite
the establishment of the Road Haulage Forum and other initiatives.
The Committee should establish the Government's interpretation
of the relative costs of vehicle operation in the UK and elsewhere
in the EU and confirm the threat posed to domestic businesses
from foreign operators benefiting from lower costs and taxation
rates.
Both the Conservative and Labour Governments justified the
Fuel Duty Escalator policy on the need to discourage inessential
use of vehicles and so contribute towards a reduction in carbon
dioxide emissions necessary to meet international global warming
conventions. Whereas many journeys by private motor vehicle may
be considered optional all freight deliveries are essential by
definition.
The belief that the Fuel Duty Escalator would provoke a dramatic
reduction in goods vehicle mileage, and hence carbon dioxide reductions,
was fundamentally flawed, In order to keep pace with the escalation
of fuel costs goods vehicle operators would have needed to increase
the fuel efficiency of their vehicles by 10 per cent a year, evey
year. This is simply not technically achievable. Engine and fuel
developments cannot keep pace with this rate of increase.
Even where hauliers were minded to invest in fuel-saving
techniques and equipment, the Fuel Duty Escalator has worked against
them by stripping cash out of their businesses. So at a time when
one part of Government is hoping to encourage investment in cleaner
and quieter vehicles and in driveer training to achieve better
fuel consumption and reduced exhaust emissions, another part is
removing the very means by which this could be achieved. Borrowing
money to make these investments is not an option in a sector making
only 2 per cent return on assets.
The additional fuel and VED costs incurred by a typical road
haulage business operating 10 vehicles are shown below:
| Road Tax Burden on a Fleet Comprising Ten 38/40te gtw (2+3) articulated vehicles Since July 1997
|
| | Fuel Duty
(£)
| VED
(£) | Total
(£)
| Increase
(%) |
| Pre July 1997 | 150,379
| 31,000 | 181,379
| |
| 1997 (July 97 Budget increase) | 164,332
| 31,000 | 195,332
| 7.7 |
| 1998 (May 1998 Budget increase | 183,548
| 32,100 | 215,648
| 10.4 |
| 1999 (May 99 Budget increase) | 197,673
| 57,500 | 255,173
| 18.3 |
| Additional Tax Burden since July 1997 | 47,294
| 26,500 | 73,794
| 40.7 |
In absolute terms the increases in fuel duty imposed since
July 1997 have increased the tax burden on a typical operator
of 10 goods vehicles by over 40 per cent. No other group of small
businesses is taxed as heavily in the UK economy or anywhere else
in the European Union.
Many hauliers believe that the Fuel Duty Escalator was merely
a revenue raising ploy masquerading under a gloss of green credentials—a
suspicion reinforced by the Chancellor attributing its purpose
to the paying of the debt in his pre-Budget report. They feel
that the Government has misled them, and Parliament, as to the
true purpose of the Fuel Duty Escalator. The Committee should
establish the Government's rationale for the Fuel Duty Escalator
and its effectiveness as an environmental measure. It should seek
an explanation of why the original environmental purpose of the
policy did not feature in the announcement of its demise.
Future Taxation Policy
Although the Chancellor announced the ending of the Fuel
Duty Escalator in his Pre Budget Report it would be wrong for
the Committee to conclude that this marked the end of the haulage
industry's problems with high tax rates. In reality nothing has
yet changed. UK fuel duty rates and VED rates are still the highest
in Europe and there is every prospect that the Chancellor will
again raise fuel duty rates in real terms at the next Budget on
the pretext that such increases are to be hypothecated to transport
expenditure.
Although additional spending on transport is welcomed many
hauliers believe that will not be in business long enough to benefit
from it if fuel duty rates go up again.
The Committee should call on the Chancellor to freeze diesel
duty rates in this year's Budget pending the introduction of a
more sophisticated fuel taxation system which can differentiate
between diesel fuel for commercial vehicles and other essential
vehicles and for other vehicles.
A different tax policy for commercial vehicle diesel fuel
The Government therefore needs to find a way of treating
goods vehicle operators differently to other road users in its
fuel taxation policies. In order to do this the Government needs
to be able to apply different tax rates to fuel intended for commercial
vehicles and fuel used by other vehicles. FTA has proposed a number
of mechanisms to Government in order to achieve this.
"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 Rebates
The practice of rebating fuel duty to bus operators is well
established and could be adapted for commercial vehicle operators.
The same arguments in favour apply as for bus operators, namely
that goods vehicle operators provide an essential service to society
and that their use of fuel is not determined by its price.
Unlike the bus industry, however, where rebates are given
based on operators' estimates of vehicle mileage, FTA proposes
that rebates be controlled through the use of fuel charge cards,
which are now widely used by commercial vehicle operators to manage
fuel purchases. These record fuel purchases against vehicle registration
number and, if necessary, driver identity. The card-company will
periodically consolidate fuel purchase information for the operator
and perform management analysis of the data. We believe that a
modified system could be used to provide a secure, transparent
and low-cost way of rebating fuel duty to commercial vehicle operators.
Some fuel card operators already undertake VAT rebates for international
hauliers.
Fuel Duty as a Tax Deductible Business 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 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 collections system.
Given the range of possible options available the Committee
should call on the Chancellor to de-couple the fuel duty rate
for commercial vehicles from that for other vehicles so as to
allow future tax policy to differentiate between essential users
of diesel fuel and those with alternative means of transport.
The Regulation of Goods Vehicle Operators
The operation of a goods vehicle is subject to a substantial
body of legislation, most of which applies to own-account operators
as well as hire-or-reward hauliers. Few industrial sectors are
licensed, regulated and inspected to the detail and frequency
that occurs in goods vehicle operation. Generally operators accept
this necessary level of control and welcome the high standards
of operation that it engenders. Enforcement practices generally
are effective and are about to be substantially uprated with the
commissioning of a major computer-networking project linking the
data records of the Traffic Area Offices with all major enforcement
agencies.
FTA works closely with DETR, the Vehicle Inspectorate, the
Traffic Commissioners and the Police in developing and updating
this body of the legislation. For the purposes of this Inquiry
FTA wishes to highlight three particular legislative issues to
the Committee.
1. THE IMPOUNDING
OF ILLEGALLY
OPERATED VEHICLES
The Committee's report into the adequacy and enforcement
of regulations governing heavy goods vehicles, buses and coaches
called for the introduction of powers for the impoundment of vehicles
found to be operating outside the O licensing system.
FTA has worked hard to secure the necessary legislation.
A private members bill moved by Lord Atlee last year proposed
increases that would meet industry's expectation. We argued strongly
that the Transport Bill now before the House should contain such
powers. We understand that the Traffic Commissioners and the Commission
for Integrated Transport have called for this legislation.
Rarely has a proposal for improving safety standards in the
haulage sector been so widely supported and rarely have successive
Governments so consistently managed to mishandle opportunities
for its introduction.
The Committee should call on the Government to introduce
amendments to the Transport Bill necessary to deliver impounding
powers as a matter of the highest priority.
2. THE NEW
POWERS CONTAINED
IN THE
IMMIGRATION AND
ASYLUM ACT
REGARDING ILLEGAL
IMMIGRANTS
Hauliers are being unfairly treated in the Government's new
legislation to tackle illegal immigration. The sanctions now available
under the Immigration and Asylum Act include confiscation of vehicles
and automatic fines. Such measures will do little to encourage
hauliers to come forward upon discovering the presence of illegal
immigrants in their vehicles.
The Committee should call on Government to work with the
haulage industry to tackle illegal immigration. The solution lies
in encouraging other EU governments to tackle this problem closer
to its origin rather than victimising those who are the unwilling
victims of stowaways.
3. OUT OF
HOURS DELIVERY
RESTRICTIONS
The Committee recommended that reductions of out of hours
delivery restrictions be carefully considered in its report on
the Integrated Transport White Paper (Ninth Report, paragraph
165). We welcomed the Committee's support of further investigation
and for a pragmatic approach to be taken. Although the subject
of planning legislation, this issue more than any other continues
to be raised by many goods vehicle operators as being as critical
to reducing the environmental impact caused by freight deliveries.
Our members would not wish us to let any opportunity pass to remind
the committee of the importance they attach to this subject.
Actions by Government
The Government needs to:
1. Recognise and acknowledge the plight of many small
and medium size haulage businesses due to a series of economic
and trading circumstances which have been exacerbated by the highest
fuel duty and VED rates in Europe.
2. As an urgent priority, reduce the overall taxation
burden on goods vehicle operators. In order to do this the Chancellor
could:
— freeze the rate of diesel duty at its current
level
— reduce VED rates, particularly for those vehicles
more vulnerable to lower-taxed foreign competition
— introduce a mechanism whereby different duty rates
can be applied to diesel fuel for commercial vehicles
— provide rebates of fuel duty to goods vehicle
operators
— introduce a vignette system so that foreign operators
pay for their use of UK roads
3. Introduce powers for the impounding of illegally operated
vehicles at the earliest opportunity.
4. Moderate the proposed sanctions against hauliers and
their drivers who unwittingly bring illegal immigrants into the
country as stowaways.
5. Change planning law so that deliveries can be made
to premises outside of peak times, by the quietest, least polluting
vehicles.
The Freight Transport Association
The Freight Transport Association represents the transport
interests of over 11,000 British businesses, ranging from small
family firms to multi-national, blue-chip companies. All members
have a common interest in the efficient reliable movement of goods
regardless of mode, FTA members operate over 200,000 heavy goods
vehicles, about half the total number of lorries on the road,
and are responsible for more than 90 per cent of the freight carried
on Britain's railways. FTA members include many road haulage businesses
ranging from large businesses providing a range of transport,
warehousing and logistics services to small family-run concerns
which undertake haulage for specific companies or in particular
regions.
February 2000
| 
