Select Committee on Environmental Audit Appendices to the Minutes of Evidence


Memorandum from the Confederation of British Industry (CBI)

  1.  The CBI supports the Government's aims to improve UK local air quality as part of a programme for sustainable development. However, sustainable development policy should address economic growth as well as social and environmental issues. Policy should therefore be sensitive to the need to compete internationally, upon which business expansion and the creation of jobs depend.

  2.  The CBI believes that current transport costs are too high and are having a significant impact on UK business competitiveness. This is acting both directly on the haulage industry and by raising costs to business in general. Prior to the recent announcements in the Pre-Budget Report, based upon a study by the Freight Transport Association, UK hauliers operated at an overall cost disadvantage of 5-10 per cent compared with non-UK rivals, putting upward pressure on costs for UK business as a whole. UK diesel prices, the highest in Europe, of which 80 per cent is tax, contribute greatly to this disadvantage.

  3.  The CBI welcomes the steps taken by the Chancellor in the Pre-Budget Report to reduce the overall burden of transport taxation on hauliers and business. By freezing increases in fuel duties, reductions in vehicle excise duty, the proposed introduction of a Vignette and reductions in duty on low sulphur diesel and low sulphur petrol the Government have gone some way to offset the competitive disadvantages UK hauliers face. In particular from foreign operators carrying out cabotage in the UK. However, we are concerned that the Chancellor has not gone far enough to tackle the high costs to business in general stemming from the high levels of duty on fuel.

  4.  This brings us to the central question as to the effectiveness of using duty on fuel to meet environmental objectives. In addition to the costs this imposes on business, the CBI believes that fuel duties are a crude instrument to tackle demand for transport in that they do not discriminate efficiently between rural and urban areas where congestion and traffic levels and therefore local pollution will tend to be highest. Nor does it distinguish between congested and free flow conditions, where the former will also tend to increase pollution levels.

  5.  In the short term fuel duty has a limited effect on the demand for road based transport as it is relatively price inelastic, for example short term price inelasticities for car use have been estimated to be in the range of (-0.2 to-0.5), (Glaister S. Graham D. `The effect of fuel prices on motorists'). Fuel used for road freight is even more price inelastic. Freight operators are essential road users and would still need to transport goods even as fuel duties increase. Currently, 65 per cent of freight, as measured by tonne/km (Transport Statistics GB 2000, DETR), is moved by road and whilst the transportation of more freight by rail must be encouraged, for the majority of cases there are few practical alternatives to transporting goods other than by road.

  6.  Even over the long term it is unlikely that the demand for road based freight transport will decline significantly as a result of higher fuel prices, the DETR modelling assumptions—which are under constant review—include a long run fuel cost elasticity for HGV traffic of just (-0.085).

  7.  Where higher fuel prices may have a longer term effect is their impact upon fuel consumption as road users switch to more efficient vehicles and driving styles, travel less or switch to other modes. However, for business, operating in highly competitive markets there is already a clear business case for switching to more fuel efficient vehicles and implementing operational efficiencies eg driver training, better scheduling and vehicle utilisation etc.

  8.  The haulage industry provides good evidence of this in that it had already been improving the fuel efficiency of goods vehicles even before increases in the rates of the fuel duty escalator from 1998 onwards. DETR figures show that the average miles per gallon for articulated lorries over 33 tonnes increased by 13 per cent over the period 1993-1998. DETR claims that anecdotal evidence from its Energy Efficiency Best Practice Programme shows that more fleets are beginning to introduce more fuel saving measures due to higher fuel prices.

  9.  So while over the longer term road users are seeking better quality fuels and greater efficiency in fuel use, higher fuel prices will have a lesser effect on the demand for road use in terms of traffic volumes.

  10.  The CBI believes that fiscal instruments work better if used as incentives rather than through increasing costs to business. For example, lowering VED for lorries encourages the use of more environmentally friendly lorries.

  11.  The introduction of a "scrappage" allowance for hauliers will also work to encourage investment in cleaner more efficient vehicles. Over the past ten years investment in new truck technology has reduced emissions such as carbon monoxide and particulates by 50 per cent and 80 per cent respectively. The Auto-Oil programme of the EC shows that such emissions will continue to fall substantially to 2010 and beyond. This is as a result of the introduction of newer, cleaner vehicle technologies and takes into account traffic growth.

  12.  Ironically higher fuel prices have made investment in cleaner lorries harder because it has squeezed the cashflow of small operators. For motor cars the SMMT figures show average emission from new cars in 1999 to be 2.2 per cent lower than 1998. Even larger reductions are anticipated when the new "Euro3" vehicles are mandated from 2001.

  13.  Such improvements have not come about as a result of high taxes and indeed illustrate that properly targeted tax cuts can be just as effective an environmental incentive as tax increases, but with less damage to the economy. Overall, there is a need for greater awareness in the Treasury of the developments in motor vehicle technology. Government needs to work with the industry in encouraging these developments and building them into its overall policy on sustainable development.

  14.  At the same time Government should also begin a radical yet careful review of all road user taxes (as proposed in the 1998 CBI report Roads to the Market), with a view to securing a taxation regime which works better with other transport policies to deliver economic and environmental goals. This review should, among other things:

    —  promote fair competition between different modes of transport;

    —  take account of the balance between fixed and variable road user costs;

    —  consider the interaction of taxation and new forms for payment for use, eg congestion charging;

    —  ensure road users get a fairer deal from the combined level of taxes and charges which they pay in that they are better related to the external costs of transport and the quality of service which they receive;

    —  minimise adverse impacts of those on low incomes in rural areas dependent on vehicle use;

    —  minimise adverse impacts on UK competitiveness.

  15.  Other policies must also be taken together to provide a package of measures that can help to reduce the demand for road based transport and improve local air quality. This should include higher investment in transport infrastructure to improve the quality of the road and rail network and supply additional capacity to reduce congestion. Improvements to public transport to encourage modal switch which in the context of the effects of fuel duties should include consideration of increases in fuel duty rebates rates for buses and its extension to coaches. This could contribute to reductions in the relative cost of travelling by bus/coach and car, potentially increasing demand for the former.

  16.  In particular the CBI is concerned that Government policy has not done enough to permit rail freight to compete on an even playing field. The CBI welcomed the Government's decision to permit the use of 44 tonne lorries. However, we are disappointed that this was not followed by an announcement of measures to offset any potential adverse effects on rail freight, a stated condition of the Commission for Integrated Transport's decision to back their introduction.

  17.  Similarly, the recent reductions in Lorry VED and fuel duty, although welcome, need to be accompanied by measures that work to encourage more freight to switch to rail.

  18.  The CBI believes there should be a commitment to exploring fiscal measures to encourage the use and development of rail freight where wider environmental and social benefits cannot be captured through commercial pricing mechanisms.

  19.  This should also ensure that the current review of track access charges, which should reflect potential efficiency gains by Railtrack, and result in charge levels that enable rail freight to compete on a commercial basis with other modes.

  20.  Whilst the majority of freight will continue to be moved by road, rail freight has a valuable role to play in contributing to sustainable distribution.

  21.  Land-use planing polices aimed at reducing the need to travel will also be an important contributor eg though encouraging higher population densities, particularly in urban areas and developments that site residential, retail and employment closer together.

  22.  The Government's £180 billion ten year plan is a welcome commitment to the higher and sustained levels of investment our transport system needs and will provide viable alternatives to road based transport, improve the efficiency of our road and rail network reducing levels of congestion and pollution. The most effective measures in reducing emissions from vehicles have been brought about thorough agreements with motor manufactures, fiscal and other incentives rather than through penalties. The CBI believes that this is the best way forward to develop a sustainable transport system we all agree is necessary, without damaging the competitiveness of UK business through high transport taxes.

November 2000

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