Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 180 - 196)



  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.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 5 March 2001