Examination of Witnesses (Questions 160
WEDNESDAY 10 JANUARY 2001
160. I would share your frustration. A number
of witnesses we had amongst Government ministers seemed to have
different reasons for wanting the fuel escalator developed and
introduced or maintained or extended. On the fuel efficiency issue,
can I play the devil's advocate again on the fuel duty escalator.
Do you not at least think that it has helped to encourage the
development of fuel efficient vehicles?
(Mr Dawson) My earlier answer indicated our whole
policy has been developed at a European level where, frankly,
the German car fleet is much further ahead. We had the benefit
of our sister organisation's research laboratories. We were just
playing in a European game where the domestic game and the fuel
tax escalator was largely irrelevant to the real world. If you
think on what happened with the EU/ACEA agreement and why it was
such a landmark, and what we had at the European level, which
is ten times bigger than the UK level, is an agreement by the
European manufacturers to hit this target. On top of that, you
then had the Japanese and the Korean manufacturers agreeing in
Europe to meet that target with all the blow back that had to
markets across the world. The impact of that agreement at European
level has been an enormous fillip globally in order to address
a global problem. Britain's domestic marginal fuel tax rate is
really neither here nor there in addressing the global warming
problem but that agreement was of global significance.
161. On a European level, surely the attractiveness
of fuel efficient cars, cleaner fuel cars, to the purchaser of
those carsbecause they tend certainly, as it stands at
the moment, to be more expensive when they come to the marketmust
be the comparative cost of petrol against LPG or more fuel efficient
fossil fuel cars?
(Mr Dawson) It is a very important point you raise
because one of the issues which you suggest, and I think I have
seen some remarks from the Committee elsewhere reinforcing this,
is that if the fuel tax escalator revenue had been used to foster
CO2 reductions there would have been, if you like,
a different political and public acceptability case. It is plausible
that you could come up with a system which actually said "Right,
here is the increase in fuel tax but we are going to use it to
make grants for more CO2 friendly vehicles". Certainly
I have been in Japan and discussed with manufacturers there the
pricing policy on, for example, the Toyota Prius hybrid vehicle
where there is a gap between the cost of production and what the
market is willing to pay. The Japanese view there to me was "We
can put it on the market at the price where the whole life cost
is exposed to consumers and they will pay a bit more because over
the lifetime of the car they will save money on fuel but beyond
that if there are any external benefits we would expect some kind
162. The consumer largely, I am afraid, does
not look at the whole life costs, it looks at the Toyota Prius
costing £16½ thousand compared with an AstraI
am not a car expertcosting maybe £12,000 and they
will then make that valued judgment. Even with the advantage of
a power shift, a drop in money of, say, £1,500, at the moment
there is still a considerable percentage difference. If they are
faced the very first time they go to fill up that car, if it is
fossil fuel, with a substantial difference between the cost of
petrol as opposed to the cost of less petrol, part electric or
LPG or whatever, then that is still a significant factor on which
the escalator has played an important part whether one likes it
(Mr Dawson) I would dispute that. I would like to
think more important to the future economics of these vehicles
is the development of different ways of paying for vehicles where
the residual value of the vehicle can be factored into the cost
of ownership. Some of those changing financial methods to buy
or run a car may be quite important.
163. I do not disagree with that. The trouble
is we are talking long term and we are talking theoretically,
we are not talking about circumstances which exist now, and certainly
did not exist when the fuel escalator was introduced in 1993.
I think we share a degree of agreement. Can I just turn to a comment
that Stephen Timms made when he appeared before this Committee
before Christmas that the Treasury would consider increasing fuel
duty again if oil prices fell dramatically. Now on that basis
that you have acknowledged the quid pro quo in other areas, be
it congestion charges going up therefore taxation rationale could
come down, surely you would agree with his synopsis?
(Mr Dawson) I think I would like to put it this way.
If a rationally based case, which actually showed net advantage
from one strategy rather than another, is put forward, it is much
easier to get accepted than one that is fundamentally dishonest.
The proposition has got to actually be advanced at the time in
the face of the other alternatives for achieving the same objectives.
To take some of the woolliness out of that, the AA was very happy
to support the catalytic converter despite the increase in the
cost of the car and particularly the maintenance of the car, as
it were. The benefits were so significantly worthwhile against
the additional costs of about three, four or five per cent on
initial purchase and £300/£400 to replace later on.
In other words, the case was made. The case for the fuel tax escalator
is frankly not made and certainly against revenue neutral options
is not made.
164. This is specifically not an escalator question.
If the price of oil dropped below $20 per se a barrel by
the time of the next Budget, therefore the price of a litre of
petrol could have come down by a few pence, albeit it only represented
a very small part of the overall price, then would you supportparticularly
if the oil companies had not reduced the price they charge for
petrol at the pumpsStephen Timms' logic of increasing the
taxation element by making a value judgment at that time before
(Mr Dawson) I think the prior question, and it is
not dodging it in any way, is for what purpose? The question is
what is the objective of increasing fuel tax other than revenue?
If you can be explicit in the proposition as to what benefit you
are looking for, then we can then say there are other ways or
there are not other ways of achieving that benefit. I think this
is absolutely central. What is the point of this high tax? We
have the highest tax on fuel in the developed world. We have the
highest price of fuel in the developed world. We are way out of
line. We have a revolting public who do not believe that it is
serving any environmental purpose. We have streams of experts
who say that it is totally disproportionate as a policy measure.
What on earth are we discussing it for is my question.
165. Petrol in America is very much cheaper
than it is in Europe. Are you saying there is no link between
the price of petrol in America and the way they use cars by comparison
(Mr Dawson) This is actually quite an interesting
question because it may or may not be the case. If you take Italy,
which is at the other end of the scale, they historically have
had a higher price on petrol and have run pretty small cars and,
indeed, a fair number of scooters as well. There is a kind of
cultural problem linked here. You may say in America well, yes,
historically it has been the case and as a result the culture
has grown up to have big cars and vice versa, that even now if
you start changing the price of fuel you are not going to overcome
that historical tradition. I think the difference that faces us
looking forward is that we are not looking at the fuel efficiencies
the likes of that we have historically been concerned with. I
think I ought to bring John Stubbs in to point out that we are
beginning to talk about 100 miles per gallon cars, we have been
talking about running cars and the technologies of running cars
which are not emitting carbon at all, we are talking about technologies
which are absolutely completely clean or even positive. In the
face of those kinds of rates of technological change and improvement
we need to be very clear as to what we are arguing with things
like the fuel tax escalator. It is a very different future in
terms of technology.
166. That is all tomorrow. The Government has
a problem today. Any Government has a problem today, that is all
(Mr Dawson) If I was to say to the Committee how many
people in the environmental world were aware that the CO2
emissions from cars had not grown at all during the 1990s that
would probably be a surprise. The fact that we are beginning to
forecast steadily falling CO2 emissions in the future
is of enormous relevance to any debate on the fuel tax escalator,
quite independent of the tax rate.
167. In the course of your answers, Mr Dawson,
you made reference to what I might describe and you might describe
as a certain lack of rigour in what the Government's objectives
are and you may have some point. Would you not concede that regardless
of what new technologies may be able to do to reduce the issue
of CO2 emissions, there may be a purpose in reducing
the amount of vehicles using roads or the growth of vehicles using
roads which is not dependent on CO2 production?
(Mr Dawson) Yes. This is where I think things have
advanced so much in the last year. For the first time a generalised
anti car feeling has begun to crystallise into what do we not
like about the motor car and what do we like about the motor car.
We do not like congestion. We do not like toxic pollution. We
do not like CO2 emissions. We do not like accidents.
We do not like the intrusion of the car into certain living spaces.
I think what we need to do is be much more specific about the
outcomes we are trying to achieve. Therefore, we were happy to
welcome what the Government started in setting out much more explicitly
what the goals, the policies, should be. Then you can argue, well,
what role does fuel tax have in delivering any of those non emissions
goals? It turns out, of course, that the answer is extremely little.
It is largely irrelevant. The work we had done from Stephen Glaister
showed that whatever modest effect putting the price of fuel up
actually has on demand and whoever it hurts, it has even less
effect on changing mileage. It is a completely bonkers instrument
in terms of trying to influence mileage driven. No doubt the intellectual
arguments for congestion charging are much stronger because they
actually impose prices which are per journey and based on particular
times and places where problems are occurring. A flat rate instrument
like fuel tax has no serious place in any non emissions policy.
168. I conceded on behalf of the Government
that I am a Member of and, indeed, in the previous Government
that there may have been a lack of clear objectives. Do you not
see as one, if not the premier, organisation representing motorists
that you have any duty to put forward what objectives might be
and how you might meet them rather than simply saying "Do
not do this to us because our members do not like it"?
(Mr Dawson) You may know that we have argued very
strong and hard for five or six years for the reform of road taxation
and greater investment in transport. We were instrumental in bringing
all parties together to develop an investment plan for this country's
transport. I think, if you like, perhaps the proudest monument
we had before us this past 12 months was the Government's ten
year plan and a much more objectives driven approach and investment
driven approach to meeting environmental and transport objectives.
I do not think I need remind anybody that this country is in a
transport crisis and it is both a joy and a pleasure to us that
this plan actually helps the environment and will help our transport
system and help us move around that much the better. I think the
figures are there to be criticised that the Government has actually
produced but we believe they are absolutely on the right lines.
169. The AA say more public transport and congestion
(Mr Dawson) The AA has been a most vigorous supporter
of public transport improvements. Our members want to use public
transport, apart from a few what we call "devotees",
where it makes sense and works for them. Attractive, affordable
public transport alternatives are vigorously supported by the
AA and have been for years. The congestion charging area is where
we put on our thinking caps and put, perhaps, some of the most
progressive proposals on the table which is the fundamental reform
of road taxation where the revenue from transport use is actually
put into one fund and we have different tariffs about how we payif
so it is cheaper rural motoring, cheaper off-peak motoring, and
then there may be a case for arguing more expensive motoring at
busy places and busy times or in environmentally sensitive areas.
170. Do you think John Prescott's department's
suggested hypothecation of congestion charging ought to pay for
these public transport links?
(Mr Dawson) Since 1995 and the advice of David Newbery
at Cambridge we have been arguing for hypothecation in transport
and we have welcomed some of the Chancellor's concessions both
on fuel tax in principle and in congestion charging. What we are
not in favour of is generalised promises instead of institutional
reform. We want clear separation of a tax for general expenditure,
schools and hospitals, and a charge for transport. That is a fundamental
call that we have made.
171. It has been argued that the effect of the
road tax escalator has at least been to slow the growth in the
rate of transport. Leaving aside the environmental benefits that
that may bring in, less carbon dioxide, you say technology could
do that anyway, is there not a benefit in increasing the efficiency
of our current road network if we slow the growth in the amount
of vehicles using it?
(Mr Dawson) I think to concede, and to put it the
other way round, the Second World War may have had benefits in
developing radar. Not everything is without any good whatsoever.
The question is whether it is proportionate or it is not proportionate.
The elasticities are such that seeking to reduce traffic growth
through fuel tax does not really have any material effect, it
is about a minus 0.3 elasticity which is absolutely swamped by
the normal growth in incomes in any year, so although it has some
effect it does not have a material effect. Then, of course, where
it reduces demand has pretty little relationship to where you
would want to reduce the demand. If you want to reduce it in rural
areas to poorer people then, fine, the fuel tax escalator is a
very selective and effective measure. If you want to reduce it
in urban areas then it is a completely bonkers instrument, as
172. You have taken the view on behalf of your
members that consecutive governments have seen motorists as an
easy target. I think you have more or less said in the course
of your contribution so far that the purpose of the fuel duty
escalator was to be a milk cow for the Treasury rather than anything
else, so you regard motorists as being unfairly treated?
(Mr Dawson) I only have to report the views of our
members. We did some survey work to actually explore their views
in some depth on this issue. One of the things we did was actually
research was what they thought the rate of tax on fuel was and
what they thought was actually spent on developing and maintaining
the roads. It was the point in the research where it was revealed
to the members what the actual rate of tax was that was so difficult
for the interviewers to move on from. People thought it was utterly
outrageous when they discovered what the rate of tax was. Most
people thought about half the price of a litre was tax and half
was spent on the roads. When they found it was 80 per cent and
that about 14 or 15 per cent was spent on the roads, they were
173. On international comparisons, an independent
survey which was commissioned by the Scotland Office found that
motorists in seven countries, including France and Ireland, pay
more tax than we do in Britain and British motoring taxes are
slightly below the European average once road tolls and taxes
on car ownership are included. If we are being unfairly treated,
if that survey is reasonable, then the rest of the Europeans are
being even more unfairly treated.
(Mr Dawson) I am not familiar with the details of
that particular work. There have been some assumptions in this
type of work which classify tolls that you can avoid as a tax.
It is somewhat missing the point.
174. You can avoid a toll but you can avoid
buying more petrol, can you not?
(Mr Dawson) Therein lies a fundamental issue. The
particular, deep objection to the fuel tax escalator policy is
that it discriminates entirely against the very group of society
least able to bear it, who are most reliant on their vehicles.
If you are talking about motorists in a rural area in France,
for example, comparing it with the average yield from French motorists,
including the high income people who pay a lot of tolls, you are
not comparing like with like because the rural motorist in France
does not have to use the autoroute system.
175. I am a regular toll payer because I live
in Wales, so I pay this toll that virtually nobody else in Britain
pays. I do not regard that as particularly fair. I would imagine
that the French who happen to live near toll roads do not either.
(Mr Dawson) The difference, between the set of watery
crossings which I believe you are referring to, is basically a
monopoly and cannot be avoided. The principle behind the French
autoroute network is that there always is an alternative available
and many of those alternatives are of a very high standard.
176. In terms of the alternatives, if I want
to drive from Calais to Avignon and get there in a few hours,
there is no alternative other than to pay 400 francs each way
on the motorway. If I want to drive from Dover to Edinburgh and
get there in a few hours, it is free. Surely there is no alternative
way of looking at it other than calculating the total cost of
that journey. Although the cost of my petrol will be greater in
the United Kingdom, the cost of the overall journey is likely,
I would estimate, to be greater in France. If I want to spend
four days driving from Calais to Avignon, I can drive toll free.
I accept that, but if we are comparing like with like the overall
cost in France will be greater than the overall cost in the United
(Mr Dawson) Let me direct you to the AA website, where
you can do a cost and time comparison.
177. I do it three times a year and my wallet
tells me what the difference is.
(Mr Dawson) There is a clear choice and the choices
are not unacceptable, but the value added to you, as a wealthy
Member of Parliament, is such that you choose to pay. There is
no way to avoid fuel tax. The lower income motorist tends to do
lower mileage and a much more locally orientated mileage than
the higher income group.
178. There is a way to reduce fuel tax and that
is to convert to a more efficient vehicle.
(Mr Dawson) That is exactly why we have supported
the graduated VED breaks to send the right signal, to help give
more environmentally friendly choices to lower income groups.
179. If we could move on to VED, how do you
explain that? You are a supporter of the VED reductions, which
are fairly marginal, a pound a week or so, because you think that
provides sufficient incentive for people to change their behaviour,
but you are an opponent of the fuel tax which is a more significant
disincentive because you say it has no effect at all on people's
behaviour. Is not the fact that what constrains your analysis
is that the Automobile Association, as an institution, does not
want to see any increase in costs on the motorist, regardless
of the intellectual justification for it? How can it be that behaviour
will be changed by a comparatively minor reduction in cost, but
behaviour will not be changed by what you think is a significant
increase in cost?
(Mr Dawson) Your constituents and my members do not
want to see increases in motoring costs. A more important point
is something like graduated VED has the potential to be an important
contributing instrument to a wider picture. If you can get somebody
to change their car at point of purchase, every mile they do will
be more fuel efficient. Graduated VED is not coming in at a time
when that is the only change. What we are trying to do is to reinforce
the introduction of these ever more fuel efficient vehicles. You
must consider also company car tax reform and the move to CO2
measures rather than cc measures. In a longer term context, 2008
is only a milestone on a continuing process. We are trying to
fundamentally inject cleaner, more fuel efficient, carbon free
eventually, technology. The vision down the track is that the
environment should be at the centre of taxation and regulation
for motor vehicles reinforcing power shift schemes and so on.
It is all part of friendly, acceptable policies which have been
properly assessed and evaluated. Nobody likes change, but I think
graduated VED is something we found particularly easy to accept
because of the inherent environmental goodwill from the public.
The fuel tax escalator produced the most appalling bad press for
the environment, as far as we are concerned. Some of the quotes
coming in from our members as to what they thought of the environmental
objectives of the fuel tax escalator were setting the cause back