Select Committee on Trade and Industry Minutes of Evidence

Memorandum submitted by the Confederation of British Industry

  1.  This evidence forms the relevant section taken from the "CBI recommendations for the 2000 Pre-Budget Report", published on 23 October 2000.

  2.  The Government's announcement of a 10-year £180 billion transport investment provides a very welcome commitment to long term investment in transport in line with CBI recommendations. The private sector—which itself will play a major role in financing the plan—is keen to ensure that delivery of the programme occurs cost-effectively and to time, and looks forward to working with Government to this end.

  3.  Agreement on the amount which needs to be invested in transport, however, only serves to focus attention on the inadequacies of how users pay for transport, and in particular road transport. There is wide recognition of the poor link between the taxes paid by road users and the quality of service (for example, in terms of journey reliability, which is particularly important to business) delivered by the network. There are also serious questions about the failure of the current tax system adequately to distinguish between urban and rural road users, and about its effectiveness in delivering environmental goals.

  4.  The CBI has also stressed in its 1999 and 2000 Budget submissions the need to address the effect on UK competitiveness of the high level of duty on diesel. Welcome developments in the 2000 Budget included an end of the automatic fuel duty escalator and cuts in vehicle excise duty for HGVs, but UK hauliers still operate 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 and of which 80 per cent is tax—contribute to this disadvantage.

  5.  Furthermore, the CBI continues to believe the Government's proposals for reforming company car taxation have been poorly thought out (the manner of consultation has been particularly poor) and offer few environmental benefits. The lack of clarity is demonstrated by the addition of a higher rate of tax for diesel-engined cars which produce lower CO2 emissions than petrol engines yet the objective is to encourage the use of cars with lower CO2 emissions. The proposals will also hit genuine high business mileage users hardest.

  6.  In short, the current tax system is failing business and new developments—not just on company car taxation, but also the likely introduction in some areas of congestion charging and the poorly-considered workplace parking levies have significant potential to add to its inadequacies. The CBI therefore strongly urges the Government to commit, by the time of the 2001 budget, to:

    —  Address with immediate effect the continuing impact of the high level of transport taxation on business competitiveness. Options for serious consideration should include some of all of the following:

      —  introduction of a UK vignette, with compensating VED reductions for UK hauliers;

      —  a review of the indexation of taxation on diesel fuel used by HGVs;

      —  a review of the levels of VED, and tax on diesel fuel used by HGVs.

    —  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 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, and the quality of service which they receive.

24 October 2000

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