Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 200 - 219)



Joan Walley

  200. I was very interested in your comments just now about the green tax group, chaired by Mr Hanton, particularly so in view of an earlier recommendation of this select committee that we would like to see some kind of green tax commission, whereby all the different issues involved with tax can be explored and looked at, perhaps from the environmental audit perspective. Can I ask either Mr Hanton or Mr Joseph: in view of the work of that group, I assume that you will be happy about the polluter pays principle, in that people should be able to face the true costs of their actions that they impose on society. Can I ask you what consideration your green taxation group has given to the pre-Budget proposals in respect of how much private motorists and hauliers are going to be likely to face the true costs of their actions as a result of the pre-Budget report?
  (Mr Joseph) In general, we do support the polluter pays principle. We see taxation as one element in a package of measures to achieve that. It is not the only principle. Secondly, the group has looked at aspects of transport taxation and we have taken a view on some aspects of the pre-Budget report. I would not say that we have had detailed work done on the extent to which motorists pay their full costs. We have done some work on particularly the hauliers' aspects. The pre-Budget report proposals do not make a huge difference in the overall costs of motoring for cars. They make some changes, but we think they make some real differences on hauliers. Our submission to the Committee reflects our concern about that.
  (Mr Hanton) On hauliers, there was some work published, commissioned by the government last year, which showed that larger lorries particularly did not meet their environmental and track costs by quite large margins. Now we have about a billion pounds of reduced taxation on lorries, particularly concentrated on the largest lorries. That implies that hauliers as polluters do not pay the costs of the pollution they cause, particularly the larger ones.

  201. Have you come up with any proposals which could ensure that people do meet the full costs?
  (Mr Joseph) In the short term, we are concerned about the government's proposals on vehicle excise duty, which seem to fly in the face of its own research that we referred to. The government's proposals seem to be moving away from the polluter pays principle towards what one official we discussed it with referred to as indicative taxation. In other words, relativities rather than actual covering of real costs. We are concerned about that. In the long term, what we have argued—and the pre-Budget report proposal for a Brit-disc is a step in this direction—is that we need a reform of road haulage taxation towards a system that is about to be applied in Switzerland of, in effect, a pay-as-you-go charge on lorries so that the biggest lorries travelling furthest pay the most tax. This system is applied in some US states and in New Zealand. In New Zealand, it replaces other vehicle and fuel costs faced by lorries. We would argue that that sort of system, which by the way other European countries such as Germany and Austria are moving towards, would be a much fairer system of taxation for lorries and would be a much clearer reflection of the polluter pays principle.

  202. In terms of proposals that are coming forward or the dialogue between the Treasury and other organisations, where do you think the impetus for developing that kind of policy proposal could come from? Could it come from your group? Where do you see the impetus for that new direction, if you like, coming from?
  (Mr Joseph) We have put the principle on the table. We think the government's adoption of the Brit-disc idea will require them to at least have a dialogue with other European countries about this because it implies a kind of payment at point of use that lorries do not face at the moment. In principle, we are interested in and are looking at the possibility of running some kind of high level seminar where the experience of countries that already run such a system of distance taxation on lorries could be shared with officials in this country so that they could see what the implications of such a system and its likely impacts are. We are hoping to take a role in pushing this idea of making that better understood. We have noted that so far officials, particularly in DETR, seem rather uninterested in moving in this direction. They are rather less interested than the likes of the Road Haulage Association, who seem rather keen on the idea in principle.

  203. I shall look forward to progress on that with great interest. Can I move on to the fuel tax escalator? I may have misquoted our former witness from the AA, Mr Dawson, but I think he made some reference to the fuel tax escalator not being the best possible tax for the environment. With the benefit of hindsight and the work and expertise that your groups have, I wonder if you feel the fuel tax escalator was justified on environmental grounds or whether you would have chosen some different kind of, dare I say, vehicle to pursue these objectives?
  (Mr Joseph) The objective that we would adopt is not to whack on as much cost for the motorist as possible, but we do see the need for gradual, real increases in fuel and motoring costs to reflect the wider costs of motoring. We believe that the fuel duty escalator has helped, particularly at a time of falling crude oil prices. We do not agree with some of the analysis that the AA and its researchers have done.

  204. Has the Committee details of where you find yourself in disagreement with some of the research that has been done by the AA?
  (Mr Joseph) You will have some of it when we send you the report we published today. If you look at the AA's own research by Stephen Glaister and others, that implies that there is a difference between long run versus short run effects; that a ten per cent increase in fuel tax reduces traffic by three per cent. That is just looking at fuel tax on its own. We see fuel tax and indeed transport taxation as a whole as part of a package. We see the objectives of that to do with carbon dioxide emissions, which is the subject of the research we published today, not so much in relation to air quality, where we agree with the AA that regulation and other measures are a better way of dealing with it; the issue of traffic growth and, to an extent, the government objective to reduce the extent to which there is development of housing and other development on green field sites. One of the things about the USA with very low fuel taxes is the extent to which that promotes large scale sprawl of the sort that they may have space for, but we certainly do not. Research from the DETR implies that fuel tax is part of a measure alongside planning controls and so on for tackling that.
  (Mr Potter) I think you did ask earlier on regarding evidence for the effect of fuel tax on the volume of travel generated. There was a study undertaken at the International Energy Agency in Paris by Lee Schipper which did an analysis of fuel costs in the USA and a number of European countries. It largely suggested that the volume of travel was a function of the relative capital costs, which are very important, and ownership taxes. There was a very strong correlation that showed that those factors explained the consequent travel behaviour and the amount of mileage undertaken in each country.

  205. Can I follow up the point you made about the sprawl and the edge city development in the US? Within the context of the pre-Budget report, I am looking at the proposals on brown field as opposed to green field development, and I wonder whether or not you would like to have seen more proposals for equalisation of VAT between brown and green fields.
  (Mr Joseph) In principle, yes. It is not a big area of expertise for Transport 2000. It is for some of the affiliated groups. Our point is that transport taxation is a policy lever that helps that objective alongside the other, more direct levers such as the brown field land measures that were announced in the pre-Budget report. We have been lobbying for the transport taxation reforms that are as much about carrots as about sticks. The tendency is to see transport taxation as wholly about sticks and one of the principal objects has been to look at ways of using the personal taxation system to give people incentives for different travel patterns. For instance, at the moment, if an employer provides a parking space at work, that is fully exempt from tax. If they provide a season ticket, that is fully taxed. We have been lobbying with some major employers who have been caught by this to try and look at ways of addressing that. We see it as important to try and look at the full range of transport taxation measures. The pre-Budget report does include some measures in this respect, in relation to an allowance for car sharing, but there is a lot more that could be done. Such moves would have wider benefits in terms of things like the government's welfare to work objectives, making it easier for those without cars to have access to jobs and so on. The fuel tax escalator, it was argued by the previous witnesses, was a relatively inefficient way of meeting objectives. We would not agree with that because some of the underlying assumptions that have been made by AA research we would disagree with. In particular, we are concerned that the work of David Newbury downplays certain external costs of road transport, climate change being an example. Also, it assumes that travel follows growth in income. Since the introduction of the fuel duty escalator, we have found growth in the economy with growth in traffic significantly below it, which has not been the case in the past. In the 1980s, for instance, we saw a large growth in the economy with traffic growth running ahead of that. The latest traffic growth figures suggest that traffic growth before the fuel protests and the rail crash at Hatfield had virtually ceased. It was a one per cent increase in traffic, I think, on the motorway network in the second quarter of last year, compared with the previous year. The growth on the non-motorway network was basically nil. At the same time, growth in rail, urban bus, motorcycle use and cycling had all risen substantially, motorcycle use by 16 per cent and cycling by 5 per cent. In other words, the trends were towards less use of cars or at least related to the economy and towards alternatives. The Department of Environment, Transport and the Regions' own background analysis to the 10 year plan suggests that the fuel duty escalator, coupled with road congestion and other factors, had led to this, so I think it is unreasonable to say that that had not had an effect.

Mr Loughton

  206. Could we come back to the question posed earlier about Mr Timms's proposal before Christmas that, if the price of oil came down considerably, we reserve the right to reintroduce an escalator or a form of it to make up that shortfall. Is that something you find attractive?
  (Mr Joseph) As I indicated in an earlier answer, we do not want to see the large scale variations in motoring costs that we have had in crude oil prices. We see taxation as a way of moderating that. We do see the need for more gradual increase in motoring costs to reflect part of the move towards the objectives we mentioned before: carbon dioxide emissions and green field development. If crude oil prices started to fall, we would argue that in principle increases in fuel duties would be necessary with the proviso that there needs to be a rather better tying in of the revenues from those towards other parts of the transport package I mentioned. This is something we have developed as well and we agree a little with the previous witnesses that there needs to be a rather better link between revenue on motoring taxation and spending on transport.

  207. Without that hypothecating element, would you support it or not?
  (Mr Joseph) It is not a question of whether we would support it; it is a question of whether there would be any public acceptability. In relation to, for instance, rural motoring, which is an issue that has been widely talked about, the research that we published with the WWF suggests that reducing motoring costs for rural areas is not a good way for helping rural areas. Spending revenue from fuel taxation or motoring taxation on better rural services so as to reduce the dependence of people in rural areas on long distance driving—more rural post offices, for example—is a much more efficient way of helping the poorest in rural areas and addressing the problem that we found at the time of the fuel duty process, which is the dependence on oil mobility that those protests showed.
  (Mr Potter) The work that we did looking at this suggested that if you simply cut the costs of fuel and motoring in rural areas it would just reinforce the cycle of depletion of the rural economy as people drive to the cities or city edges to get to the shops and so forth. Increasingly, the shops and facilities in rural areas shut down. Almost paradoxically, reducing the costs to rural areas worsens the economic plight there and requires a more integrated approach towards the real problem, the heart of which of course is a collapse in the rural economy. That is just expressing itself in terms of the fuel protest rather than getting at the heart of the rural problem. That appears to be the basis of our analysis, which seems to have been supported from other areas as well.

  208. It is an interesting version of hypothecation that people in the country should pay higher charges for their petrol which are hypothecated into subsidies and retaining local post offices or shops or whatever. Can we look at the ultra low sulphur petrol which everybody is still looking for, and whether you think the benefits of it for air quality and CO2 emissions outweigh the benefits of continuing with an escalator?
  (Mr Joseph) We support the principle of what the government has done on ultra low sulphur petrol provided that the benefits feed through to the more fuel efficient engines that the manufacturers have promised. The basis for ULSP has been that, with that, certain types of technology can be enabled which will be much more efficient and reduce CO2 emissions. In effect, that reduction needs to be backed by a regulation making car manufacturers come up with what they promise. Subject to that, we support the move to ULSP.

  209. When do you anticipate that that kickback will come into force? Effectively, we are talking about now and the ongoing advantages of CO2 emissions, as you would see them, of the escalator need to be outweighed now against the sulphur reduction. Are you still saying as you did in your submission that the ultra low sulphur petrol will reduce carbon dioxide emissions now and when considering the fact that it is rather more energy intensive to produce the stuff as well? Do you take full account of all that in your equation?
  (Mr Hanton) We did not comment on this in our submission. We agree with the Chancellor's proposal on the basis that there is an immediate improvement in sulphur and other emissions and there will, in the longer term, possibly be an improvement in engine efficiency.

  210. In terms of the equation that we are looking at now, the advantages that you say are from the escalator will not be compensated for by the reduction to make it more attractive to have low sulphur rated petrol when it comes in in the next financial year.
  (Mr Joseph) In relation to the 3p reduction on ULSP in the pre-Budget report, as we have seen in the last few weeks, that can be wiped out or added to by changes in world oil prices, so it is unlikely to have a major impact at that level on travel behaviour. The Treasury has done some analysis, which we have seen, which suggests that, assuming oil prices stay at roughly the level they were at the pre-Budget report time, the effect would be the same as if the fuel duty escalator had carried on at the previous level of crude oil prices. In other words, the changes in crude oil prices have done the job the escalator would have done, even with the ULSP. Given the advantages of the ULSP and the fact that the objective is not to keep the escalator but to have a real reflection and allow people to gradually unhook themselves from over-dependence on cars through gradual, real increases in motoring costs, we support what the Chancellor has done in that area.

  211. We heard from the AA earlier that the government is not properly evaluating the purpose of the escalator or, perhaps more importantly, the alternatives. Are you satisfied that it has done a proper environmental assessment of all the changes in this package such as green measures in the pre-Budget report?
  (Mr Joseph) We have not seen the detailed environmental appraisal that has been done on this.


  212. Do you think one has been done?
  (Mr Joseph) I have no idea.

  Mr Grieve: It was rather our impression that none had been done.


  213. The implication from your answer was that there was one that had been done but you had not seen it. You are saying that you have not seen anything?
  (Mr Joseph) We have not seen anything.
  (Mr Potter) We have not seen a government appraisal but we have seen independent ones which we have looked at.

  214. Which are those?
  (Mr Potter) They are ones which have been undertaken among the literature we have looked at. I have not come prepared to answer that specifically but I could forward a note.

  215. Yes. This goes to the central point of our investigation, as to what appraisal was made in this rather significant direction change in policy.
  (Mr Potter) The degree of appraisal varies immensely according to political expediency all the time.

  216. Could you send us a note?
  (Mr Potter) Yes.[3]

  (Mr Joseph) What we would disagree with the AA on is their assessment of the cost benefits of the fuel duty escalator versus other measures. The reason for that is that their view on what the new technology that they were talking about through the various European agreements will do to cars on the ground is different from ours. The reason for that is found in their own research where they include a very interesting graph of average new petrol car fuel consumption between 1978 and 1997 and it is flat. That is at page six. The reason for that is that people use more fuel efficient vehicles to buy different vehicles and to drive further. People, for instance, trade up to sports utility vehicles in the US or four wheel drive vehicles here and the result is that the actual fuel efficiency of the vehicles being driven has barely changed. One of the interesting things in our research report produced today is that the United Kingdom is at the bottom of the European league progress in the last five years for reducing CO2 emissions from its car fleet because of those sorts of changes. Our concern is that if, as the 10 year plan suggests, real fuel costs fall by a fifth because of changes in fuel efficiency, that will wipe out any impacts of the European directives and agreements that have been talked about. That is why we think that fuel duty increases need to be conducted alongside technology changes.

Mr Loughton

  217. There was a survey commissioned in the summer by the RSPB on second hand car buying, which is a large business in this country. It asked people their reasons for selecting certain cars. Those who stated fuel efficiency for environmental reasons were three per cent, well down the ladder. Those who cited the colour were 9 per cent. That is a big problem with perceptions. The environmental message has certainly not got this problem across. The government obviously did not get it across during the fuel crisis recently and organisations such as yourself might take the blame for not having done your job, which is to promote those environmental alternatives.
  (Mr Joseph) We tried and found that we were rather frustrated that the government did not make more of these arguments and relied on public spending as justification for the fuel duty escalator, which we felt played into the hands of the members of the AA who were quoted earlier. This was really about raising money for public spending rather than having any environmental justification at all. We think there is an environmental case. It could have been stronger if it was tied to other things and we think the government should have made that case. We, with others, will be doing more to try and make that case in the future.

Mr Jones

  218. On company car taxation, do you think the reforms go far enough?
  (Mr Joseph) Can I differentiate the reforms on company car taxation proper with authorised mileage rates for business use of private cars? There are two systems, two sets of reforms, being proposed. In relation to the company car reforms, we broadly support those. We think they are very much moves in the right direction and they reduce the incentives of the current system towards unnecessary motoring to hit the mileage break points. In relation to the authorised mileage rates, in our submission to the Committee we indicated our concern on this. Our concern is driven by the fact that the AA's own figures suggest that the 40p rate is far in excess of the real cost of running a car. We said in our evidence that a return journey between London and Manchester of about 400 miles will generate a tax free payment of 160 pounds against a running cost estimated on the AA's figures—we do consult the AA's website - of a car of 1400cc of 74 pounds and a petrol cost of 42 pounds. That is why we are concerned about this.

  219. Additionally, to the potential driver, the benefit of getting money is almost immediate; whereas the perception of the effect upon their vehicle is a much longer term perception.
  (Mr Joseph) Yes, it is. We support the principle of the flat rate but we think 40p is too generous and the 10,000 mile threshold is too high. What is of particular concern to us is that, with the company car system where there are figures in the public domain where you can see how many company cars there are, how much they are driven and so on, in the case of the business use of private cars, the Inland Revenue have not published data so it is rather difficult to see what the effect will be. We think it is very important that they publish statistics on authorised mileage so that the environmental impact can be kept under review. Again, returning to the earlier question, this is one case where we do not think a detailed analysis of the environmental impact changes has been done.
  (Mr Potter) Can I add a small point on that regarding the mileage rates? The DETR have commissioned me to undertake some research for them looking at the way in which the tax system could be reformed to encourage modal shift or more environmentally benign travel behaviour. As part of this, we have undertaken discussions and surveys of companies regarding the current tax regime. One of the comments that I got back from several companies that has formed a recommendation to the DETR concerns the reform for a passenger mileage allowance that can be given in addition to the 40p per mile allowance at the moment. At the moment, the Chancellor is proposing 2p per mile. A number of companies have suggested a rebalancing between those two and that there should be a higher passenger mileage allowance and a reduction in the basic car mileage allowance. The suggestion coming from companies was something like a 4p a mile passenger allowance, knocking the basic allowance down to 35-37p per mile. The argument there is that not only do you therefore encourage the use of more fuel efficient vehicles; you also encourage higher vehicle occupancy. It requires to hit a certain threshold level with the passenger allowance before that will encourage people to say, "I am going to this business meeting. Would you like to come with me?" The argument is that an extra 2p a mile does not do it but something like 4p or 5p a mile would. That is hot off the press information which has only just been submitted to the Department.

3   See Carbon-Dioxide Emissions from Transport in IEA Countries: Recent Lessons and Long-term Challenges, Transport 2000. Back

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