Examination of Witnesses (Questions 180
- 196)
WEDNESDAY 10 JANUARY 2001
MR JOHN
DAWSON AND
MR JOHN
STUBBS
180. I want to press you about what you said
earlier about revenue neutrality and motoring costs. Is it not
the case that your starting position—that is, no increase
in motoring costs whatever the environmental, social, technological,
intellectual justification—will necessarily constrain your
point of view. That is your position. There are no circumstances
in which you are going to argue for higher costs for the motorist
because of your concern about your members.
(Mr Dawson) Our revealed behaviour is absolutely rational.
I said earlier in the case of the catalytic converter that the
evidence for increasing motoring costs not insignificantly was
quite strong. The AA supported the introduction of that. We have
supported every round of Euro 1, Euro 2, Euro 3 and Euro 4. We
have supported the EU agreement even before the scale of what
we signed up to was seen. It is likely to have the effect of raising
the price of vehicles. I refute the idea that we are blindly against
a rise in motoring costs, no matter what. The question is the
assessment. Let us see the benefits from this particular policy.
Let us see rational alternatives, smarter ways of achieving the
same impact. Our hypothesis is that no one has shown us that things
cannot be done through regulation, technological advance and revenue
neutral changes that would meet—with the investment targets
giving a high rate of return—that would meet all the goals
that have been set. Set the goals out clearly and let us look
at the different ways of getting there.
181. You are not against increasing costs of
vehicles with catalytic converters; what you are against is increasing
taxation.
(Mr Dawson) Supposing somebody had come up with a
technological fix for fuel which was going to put up the price
of fuel materially and the catalytic converter was not around.
I believe our position would have been entirely the same on fuel
as it was on the catalytic converter. The cost of motoring is
the issue and choice, the ability to discriminate, to allow particularly
the lower income groups reliant on the car as essential to keep
motoring and maintain their lifestyle.
182. If we are talking about choice and maintenance
of living standards, we are looking a little beyond the costs
of motoring. Would you not accept that, as the fuel tax has increased
over five, six or seven years, other taxes have reduced? What
I would put to you is that your definition of revenue neutrality
is very limited because it focuses entirely on the costs of motoring;
whereas, for the average citizen, their real concern is about
the overall burden of taxation and what they are concerned about
is revenue neutrality across the board. They will consider the
rate of income tax they are paying, which has come down not exactly
year on year but significantly over a five year period. They will
consider the rates of VAT. I agree with you there are anomalies
there. They will consider other taxes they pay—council tax
and so on. Are you not constrained by your obsession with revenue
neutrality in motoring costs and would your analysis not be more
valuable if we looked at overall revenue neutrality for fiscal
policy and considered the impact on the citizen of the income
tax reductions?
(Mr Dawson) I would like to play it back to you as
our challenge on revenue neutrality. It is not an obsession. I
have no licence to speak outside motoring but by all objective
accounts the AA was far too quiet for far too long about motoring
taxation. All our sister European organisations thought we were
completely bonkers to carry on in such a rational way for so long
in the face of a completely blank, stony wall to the rather good
research we felt we were doing.
183. How do you view the VED reduction, allowing
vehicles up to 1500cc? Would you not accept that there is an argument
that this provides a disincentive for people trading down to even
smaller engines?
(Mr Dawson) I think at the back of our minds we have
time in all this. The global warming issue, for example, is about
a particular Kyoto date and toxic emissions are falling very sharply
indeed. The ultra low sulphur thing is going to give a very substantial
kick downwards to our toxic emissions index some time in April.
The time variable is such that we are moving to grams and the
cc thing is just a question of balancing judgement.
184. Is there a technical argument to extend
the graduated VED system from new vehicles to existing vehicles?
(Mr Dawson) In a sense, that is what the Chancellor
is saying in the Pre-Budget Statement. He is trying to give a
pragmatic fix. If you had to deal with DVLA, you would understand
without any more discussion that it is wonderful to be able to
introduce the systems that we have in the time that we have. To
go any further would have been foolhardy.
185. Technically, is there any objection as
to why the graduated VED could not be extended across the board
to all existing vehicles?
(Mr Stubbs) The difficulty there was the availability
of the legislative figures because a lot of the older vehicles
were not tested in the same way that the current vehicles are
being tested. It would have been an administrative headache if
there was a technical benefit from looking at a more coherent
scheme. It is going to be a reducing problem.
Mr Jones
186. What do you think about the new arrangements
for company car taxation which have been announced in the Pre-Budget
Statement?
(Mr Dawson) I would like to differentiate, if I may,
between the principle of welcoming the thrust of what the Chancellor
is doing and, if you like, the understanding of what the Chancellor
is doing with a kind of watch-doggy type comment. We have to act
as a watch dog on all these measures. We have a fear that he will
flex over time and that it will be easier to raise taxation overall
with tweaks here and there. You saw what happened, for example,
with having two rates of inflation, one for motoring and one for
pensions. There is so much scope as these systems come in for
penalising certain groups and not realising that it is happening
and that it is a worry to us. Overall, we think a more resolved
system of taxation which is picking off CO2 as well
as the benefit in kind is fair and acceptable in principle.
187. You think it is fair in principle but you
are afraid of what the government might do with it.
(Mr Dawson) We have to watch it like a hawk year on
year and measure its impact.
(Mr Stubbs) There are going to be some quite surprised
people when they come to work out what their taxation finally
is, having bought a large car. A lot of fleets will have a whole
new set of parameters to look at.
188. That is the purpose, is it not?
(Mr Stubbs) It is effective.
189. You cannot have it both ways. You cannot
say that the purpose of the fuel duty tax will be to take money
in. Now you are answering, "We are not sure about this tax
because it may influence what people do."
(Mr Dawson) Firstly, we have said very clearly that
we are happy to explain the principle that it is going to be cheaper
to run a small, clean, efficient vehicle than it is a gas guzzler.
Within a revenue neutral set-up, we are very happy that that should
be the case. That does not mean that it is a carte blanche to
the precise matrix that has been chosen because we are in uncharted
territory slightly as to what the differential impact is. All
we know is that when you change a system like this you will get
some people who are caught in a way that you did not expect them
to be. This is a rather tedious practical Budget point I am making
as opposed to the in principle point which we accept. I am not
trying to have it both ways at all. I am quite clear, for example
on graduated VED, that the rates of graduated VED are fair and
revenue neutral. The matrix on company car taxation may have one
or two perverse impacts in it which will come out of the woodwork
when we start implementing the system. We are not sure as to what
the impact will be so we are reserving our position in terms of
making follow-up representations about the matrix, not the principle.
190. Transport 2000 feel that the 40 pence flat
rate is too generous and that the 10,000 mile limit is too great.
Do you think that there is an incentive within those limits to
use the car rather than go by train or whatever because people
will perceive that they are making money out of it?
(Mr Dawson) The structural point is that we have had
some representations, particularly from the lower income workers,
about mileage rates, district nurses and so on, who are using
their car and not getting an adequate allowance for it. One has
to be very sensitive in the tax system generally as to how it
is impacting on people. You take broad, environmental principles
and then you find in your joined-up thinking that recruiting for
the health service has got somewhat damaged. You need to be careful
about what you are doing.
(Mr Stubbs) Within that 40 pence, there is every incentive
to minimise your outlay. There is much more interest in minimising
fuel costs, which is part of the object.
(Mr Dawson) As an environmental audit committee, John
is saying that there is an environmental benefit from having a
structure which will benefit people, whether they think it is
right or wrong.
Mrs Brinton
191. We have talked about Treasury policy quite
a lot and I take the view that you have a rather healthy scepticism
about it, regardless of which government. Do you think that present
Treasury policy is aware of and keeping pace with—even setting
the agenda for—new technologies like the ones on the horizon
at the moment or ones in the future?
(Mr Dawson) I would characterise this as a period
of rapid conversion. It was, almost up until 24 months ago, impossible
to get the Treasury interested in vehicle taxation or transport
investment or whatever. In the last 24 months or so, we have seen
the Treasury recruiting analysts and experts in this area. They
are very eager to learn. If Transport Department officials were
allowed to say these things, they would agree with my assessment
that Treasury are climbing the learning curve very fast and they
are genuinely interested. I think the pressure this Committee
can put on environmental assessment of policies is very positive.
I used to say that the Treasury gave less environmental assessment
to a 30 billion tax revenue hike than, for example, an environmental
assessment on a local supermarket planning permission. It was
just appalling.
192. What do you think has brought about this
rapid learning curve or miracle conversion? Do you honestly believe
it is just that the Treasury woke up one day and felt, "Gosh,
the environment really is important"?
(Mr Dawson) I think it was us saying at petrol stations
that out of every ten pounds eight pounds is tax. That was a salutary
lesson to the political process. Ministers were going round saying,
"Oh God, it is not, is it?" We did not have to say any
more than that. We did not have to campaign. Everybody just drew
their own conclusions and from that point onwards the environmental
purpose of this measure had to be justified and it is the reason
why the Chancellor's statement made in 1999 almost has a throw
away remark about the purpose of the fuel tax escalator, about
environmental policy, as he talked about the gap in government
finance that the fuel tax escalator fills. It is this mixture
of an issue on the political agenda and the fact that I do believe
the Chancellor in particular does have a clear, medium term, rational
view about how the economy ought to be managed. He realises that
environmental assessment is something he cannot escape from.
193. And obviously an ability to hear informed,
loud, clear, plain statements. We have talked about new technologies.
Perhaps you could tell us a bit more about them. Which ones do
you think are particularly exciting, either at the moment or in
the future, and which ones do you think are going to benefit not
the motorist alone but equally the environment?
(Mr Dawson) I regard the future of the motor car at
this point rather like the Intel processors. Basically, you know
where it is going to go but we have to go through Pentium 5 and
Pentium 6 and get the 2GHz and all the rest of it on the way.
People have to be patient, but it is going to go through a rapid
period of evolution. The three stages I believe are, first of
all, these ultra clean vehicles by about 2005; then we will go
through the 100 mile per gallon barrier; then we get to the carbon
free emission, totally clean vehicle.
(Mr Stubbs) There is not going to be a sudden shunt
from one technology to another. There is a lot to be said for
reducing dependency on carbon fuels for the longer term. We could
see fuel cells coming in five, ten or fifteen years and then starting
to build up a useful part of the vehicle in use. In between, there
has to be a much better use of fossil fuels, for instance, with
hybrid technology which is very promising but comparatively expensive.
It is not something which can be adopted immediately with existing
cost frames. Someone has to pay to introduce this technology.
Hydrogen obviously offers the big, radical benefits in the very
much longer term, but moving directly to a hydrogen economy is
a very optimistic strategy. There are intermediates we could look
at, such as methanol fuels. Running fuel cells for vehicles on
liquid methanol is a route which can use modified existing infrastructures.
We are going to be using diesel and petrol vehicles for 20 years
from now. This is not something we can do now because of the infrastructure
of the manufacturing capacity. They are getting so much better
that there are still enormous improvements coming through from
the technology and the chemistry involved.
(Mr Dawson) The taxation policy is absolutely central
to this. It has to be constantly monitored. One of the benefits
from the commercial side is that car manufacturers would love
to do things like hybrid vehicles because they are very high value
added, complicated, expensive products to produce. If you are
in business, that is the kind of thing you would like to produce.
There are some pushes coming in that direction, rather like in
the computer industry.
194. Perhaps there is also a message for us
here in terms of getting some of these new technologies more into
the modern parlance so that people know about them. I can imagine
that while LPG or natural gas are reasonably well known, the average
person will not have the slightest idea about the methanol option
that you mention.
(Mr Dawson) We think we could have done better when
we read the headline following the Budget, "What is this
fuel? Where is this fuel?", referring to ultra low sulphur
petrol. The truth of the matter was that even we were caught out,
partly for reasons which we later understood, about how much of
this fuel was being sold already. Companies were pushing it through
their unleaded pumps unlabelled because they got a 1p tax break
that they could take from the Inland Revenue, to be polite. Things
like City Petrol therefore were a way of educating the public
about the alternative fuels, but we did not do as much as we should
have done. We were too technically focused.
195. One thing that the Treasury has said quite
loudly and clearly is that they do want to preserve and maintain
a differential between petrol and diesel. As a consequence of
that desire, the government has further reduced the duty on ULSD.
Do you think, as an organisation, that a small difference in price
would make people make the change and switch between petrol and
diesel?
(Mr Dawson) It is more than price involved. There
is also the MPG. The AA has found it is constantly a difficult
problem about what to advise members. At one point, we were on
the verge of advising members to go for diesel. Then we got the
health scares and the particulate scare. We were literally a month
or two from making that big push on diesel. Petrol and diesel
are varying in their merits as they develop.
(Mr Stubbs) You cannot say that there is a particular
purpose for one or the other. It does depend on how the vehicle
is used. Our advice normally to owners who are looking to make
a choice is, if they are in urban use, the emission benefit from
a modern gasoline car with a catalyst outweighs other factors
because the toxic emissions are so much reduced. On the other
hand, if you are in suburban use and out of town, the carbon dioxide
emissions of diesel are so much better that it would have to be
the preferred choice. It is horses for courses. To some extent,
there is new technology which is reducing the disbenefits of diesel
emissions, some with particulate traps with improved Euro 4 conditions.
You cannot say that the diesel is so markedly better; there are
still difficulties. The technology is possible to even them up.
We cannot do without diesel; it is too efficient.
(Mr Dawson) Can I give a concrete example of some
action the Treasury has to take in this area? LPG has been an
environmental advantage. There have been grants to produce it.
I have reviewed this with industrial interests as well. What is
clear to me is that the environmental advantage of LPG is reducing
quite rapidly as Euro 3 and Euro 4 come on track because the comparative
standards of Euro 3 and Euro 4 are so tight that the environmental
advantages of LPG over these two become quite close. On the other
hand, there is an advantage, but if I am answering people who
are running a fleet when they say, "What should I do?"
I say, "Hang on, because until the Chancellor makes absolutely
clear what the tax regime is over a period of a three to seven
year range, I cannot give you any advice at all." We are
in the worst of all possible worlds. Unless there is absolute
certainty so that people can plan and invest against a particular
tax regime, uncertainty in a tax regime is positively harmful.
So whatever tax mechanisms we have, for goodness' sake in this
area, be clear and consistent about what they are and how long
they are going to last so that people can make investment decisions.
196. The Environment Minister, Michael Meacher
- this is a direct quotation from Hansard, 25 October last year—said
that the government will continue to reform taxation and reward
those who drive cleaner, more fuel-efficient vehicles. What more
reforms do you want?
(Mr Dawson) We did have a discussion with the Treasury
about safety because one of the great complaints we had was, at
the same time all this was going on with the environment, we were
taking manufacturers' cars at the European level out of showrooms,
smashing them up and giving them star ratings for their crash
test performance. What the manufacturers were saying to us was
that we have one directorate in the Commission telling us to do
safety things by one timetable and one here on toxics and one
on cleaner emissions and there is even some confusion about certain
lights flashing on the dashboard which are relevant. Safety must
in all of these environmental discussions be factored in more.
I am concerned that safety begins to take second place as a fashion
to the environment. We would like to see safety right alongside
the environment. It applies to road design as well. Compromise
has been made on safety for environmental reasons and it must
be made much more explicit and not brushed under the carpet.
Chairman: Thank you very much indeed.
That was a very helpful session.
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