Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 82 - 99)




  82. Good morning, Mr Roberts. perhaps you could introduce your colleagues and we will begin.

  (Mr Roberts) Thank you, Chairman. My name is Michael Roberts and I am Director of Business Environment at the CBI. On my left is Kate Barker who is our Chief Economist and on my right is Barney Stringer who is Head of Infrastructure at the CBI as well. If it would be helpful, I am happy to summarise our broad position and then take questions from your colleagues if that would be appropriate?

  83. I think we have had your submissions so I think we will use that as the basis for our questions. I do not think we need to proceed with that.
  (Mr Roberts) Yes.

  84. We have asked you this morning because we know you represent the broad swathe of British industry. We think that part of the events that we have been focusing on in the last session with the last group of witnesses is, you might say, really concerned with the problems of a particular group. We are trying to establish here whether or not across the board British industry is being disadvantaged and the competitiveness of British industry is being given a hard time by the incidents of fuel taxation in the way that it is. Maybe we could start off. Have you been able to measure the degree of disadvantage that British industry and commerce has experienced as a consequence of the fuel taxation of successive governments?
  (Mr Roberts) Perhaps the best way of beginning the answer to that question is to mention that transport costs as a proportion of overall business operating costs are a relatively small amount, roughly five to ten per cent of overall costs, but that differs from sector to sector. However, our concern is that the impact on margins in various ways is the most significant. It is significant in the context of overall tightness of operating margins in the UK but I think it often needs to be seen in the context of a range of increased costs to business. We have the highest business rate property taxes in Europe. The influence of sterling, for example, on manufacturers, the influence of the proposed climate change levy, about which we have talked to this Committee before. Total business taxation we estimate has gone up in the region of five billion pounds a year since 1997 and in that context the increase in transport costs to business as a whole, fuelled partly by the level of duty, is a concern. I should mention that business, we estimate, buys over half of all the fuel that is sold in the UK. If you look at simply the duty that is paid on that amount, we estimate that the amount in duties paid by business in its purchase of fuel has gone up by about two billion pounds in the last three years.

  85. You have thrown a lot of figures at us. Let us just try and get them in perspective. The five billion that is spent on fuel, is that correct, represents somewhere between five to ten per cent of the costs of the turnover of companies?
  (Mr Roberts) The five billion to which I was referring was our estimate of the overall increase in business taxation generally.

  86. Right. That is business taxation generally. What is that as a proportion of costs?
  (Ms Barker) The figure that Michael quoted as a proportion of costs is five to ten per cent of the proportion of transport costs overall, obviously, which is affected by far more things than just fuel taxes. The important thing about that is of course that is an overall figure, it is much higher for peripheral companies producing relatively heavy goods.

  87. If they are producing very heavy goods they will not produce very many of them, will they?
  (Ms Barker) No. Goods which will have to be physically moved.

  88. You related a number of taxes which are higher to the UK than they are in the eurozone, for example, there are some which are lower as well.
  (Mr Roberts) Indeed.

  89. There are things like the absence of charges for motorways and things like that which are tolls we do not have. Overall, are you able to make a comparison? You have picked some cherries and you have picked some rotten apples but you have not really put them together and said how much the package would cost.
  (Mr Roberts) Some work has been done within the Road Haulage Forum which brings together the Government and various sector bodies, who you will be talking to later in your inquiry. In the course of those discussions it has been suggested with regard to freight transport costs, that the UK haulage industry is operating at a five to ten per cent cost disadvantage to hauliers in France and Northern Europe and that disadvantage takes into account the overall operating environment in those different countries, in other words not simply the negative, if you like, of high levels of fuel duty but also the positive of lower social welfare costs. It nets out still at a relative disadvantage of that order.

  90. You mentioned the heavy goods, could you be a bit more specific about the sectors which are worst hit, most vulnerable at this time to the disadvantage that you have just indicated? We realise it is an average ballpark figure but talk about specifics.
  (Ms Barker) I think in a sense the sectors that we all know are worst hit and most disadvantaged by the overall economic circumstance are particularly manufacturers of commodity products which are often the kind of fairly bulky products that do require transport who are competing in markets where the margins are extremely tight and who are already very disadvantaged by the strength of sterling against the euro. They are going to be companies who just cannot pass on the fact that they are also paying disadvantages in haulage costs. It is going directly to squeeze their margins and for some of them it will imperil the future of their business.

  91. You have not got any specific sectors by name rather than just an indication of potential product, have you? Have you, in your survey, identified areas of British industry where things have really got that much more difficult because of the change in fuel tax?
  (Mr Roberts) There are certainly individual examples that we are aware of. There is, for example, a large employer in the North West, employing about 800 people, £80 million turnover, whose activities cover a range of sectors. The company is involved in construction, some element of manufacturing, some element of aggregate work as well. The effect of the recent increases in the price of fuel have added about £350,000 to that company's operating costs. As part of his operation the company chief executive runs a transport operation. He is running that particular element of the business at a loss and has had to make redundant a number of people. That is a very specific example, clearly. In other areas, for example in retail, we have had reports of upward pressure on their transport costs. It depends rather on the extent to which those retail companies operate their own fleets and the extent to which they contract out their operations but some are able to absorb those costs, some are not. That is in a sector which, as you know, is extremely competitive at the moment. That again, is putting pressure on the margins.

Mr Butterfill

  92. Some people are saying actually that the biggest problem in the road haulage industry is over-capacity of the market. There are too many road hauliers taking too few loads and their margins are too low and that is more of a problem than changes in vehicle excise duty. Is that something you would agree with?
  (Mr Roberts) I do not know if Mr Stringer would like to interject here, but I do not think it is an area where we have particular speciality.
  (Mr Stringer) It is certainly true that the road haulage industry is very competitive in the United Kingdom. I do not know quite how you define the industry. It is a competitive industry and one with over capacity, and I do not think I would be able to say.

  Mr Butterfill: You could not comment?


  93. Maybe we can take this up with the Freight Haulage Association, because we know that in correspondence between Lord MacDonald and the FHE there was a suggestion that there was something of the order of 20 per cent over capacity, and that is where we got the figure.
  (Mr Roberts) We have seen the same sort of reports, but we do not have any particular knowledge as to how accurate the reports are.

  94. Do the single vehicle companies feature in your ranks?
  (Mr Roberts) There will be some members who are from that sector, but the particular perspective that we try to bring to this debate is the broader area of concern amongst the business community at large. I think it is fair to say that whilst much of the focus, both within our own councils and more generally, has been on the cost of operating freight transport, clearly there is an impact in terms the cost of business for staff travel as well, and we should not overlook that. We do not particularly feel well placed to speak on behalf of, either the haulage industry specifically, or the smaller end of the haulage industry about which your question refers.

  Chairman: We are really, in some ways, more concerned about your observations on the general structure of the macro picture, but we will take it up with your colleagues in the haulage industry in general terms.

Ms Perham

  95. The Post Office has told us that as a direct result of high fuel costs in the United Kingdom their road transport between the United Kingdom and other European companies are now operated by European hauliers. Is that the experience of your members, or are they still using United Kingdom hauliers?
  (Mr Stringer) It is very difficult to quantify, but certainly at an anecdotal level we have heard similar stories. The issue of Northern Ireland was mentioned earlier, I think, and there is a particular problem there. As you say, it is a mixture of United Kingdom hauliers who carry out trips abroad that will come back with the full loads of fuel. So there is a certain element of United Kingdom hauliers buying their fuel abroad. There has also been some anecdotal evidence of companies, as you say, flagging out. I do not think we are in a position to say to what degree that is.

  96. Using European hauliers for their transport into Europe. So, as far as you know, there are still United Kingdom businesses who are doing their road transport costs through Europe, through your members, and they have not all decided to use European hauliers?
  (Mr Roberts) That is correct. There will be market limitations on the extent to which that can happen in any event, partly because some freight transport is quite specialised, for example, in the construction sector, and you rely upon local firms; partly because geographically there will be less attraction for foreign hauliers, perhaps, to offer domestic haulage services in different parts of the country. The further you get away from the points of entry into the United Kingdom, the less attractive it is likely to be. There are always likely to be limitations, but within that overall context our understanding is that our members are still predominantly using United Kingdom hauliers for their freight transport needs.

Mr Cunningham

  97. What are you hoping to see in the Chancellor's pre-budget report? (Mr Roberts) We are hoping that he will make a commitment by the time of the Budget next spring, to introduce a vignette, about which we heard some mention earlier; a review of the levels of vehicle excise duty, not simply for HGVs, but also for cars and vans; and a review, particularly, of the question of indexation of duty on fuel, because indexation is part of the calculations that the Government has in place for its accounting at the present time.

  98. You do not think it should introduce, for example, one of the measures such as road tolls?
  (Mr Roberts) We have been on record as saying that tolling, be it on motorways or in the form of congestion charging in urban areas, should be part of the future way in which road users of all types pay for using the road network. However, we do have in place at the moment an existing tax structure and before we can move wholeheartedly to those sorts of instruments there needs to be a fundamental review of the way in which road users pay for transport generally, including taxes as well as potentially new charges of the sort that you mentioned.

Mr Butterfill

  99. There also needs to be a huge improvement in public transport. At the moment if you drove people out of their cars in London, they cannot get in on the trains at all.
  (Mr Roberts) We could not agree with you more.

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