Memorandum from the Confederation of British
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
assumptionswhich are under constant reviewinclude
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
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
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