Select Committee on Trade and Industry Minutes of Evidence

Memorandum submitted by the Road Haulage Association (RHA)


  The Road Haulage Association (RHA) was formed in 1945 to look after the interests of haulage contractors in various areas of the country, in effect, amalgamating local organisations that had been established. The association has subsequently developed to become the primary trade association representing the hire-or-reward sector of the road transport industry. There are now some 10,000 companies in membership varying from major companies with over 5,000 vehicles down to owner-drivers.


  The road haulage industry plays a pivotal role in the UK economy carrying some 81 per cent of all domestic freight. In 1999 this amounted to:

    —  991 million tonnes carried in hire-or-reward vehicles;
    —  576 million tonnes carried in own account operators' vehicles;
    —  a total of 1,567 billion tonnes moved by road transport;
    —  149 billion tonne kilometres on road transport;
    —  an average length of haul of 50km for rigid vehicles, 136 km for articulated lorries and 95km as an overall average.

  There are around 112,000 holders of operating licences, some for own-account transport and others for the provision of hire-or-reward services. Between them they operate some 421,000 goods vehicles of over 3.5 tonnes gross weight of which about 70,000 are 38 tonne lorries. It is worth noting that 20 years ago approximately 500,000 vehicles carried a smaller volume of traffic reflecting the very considerable efficiency gains that the industry has made. The industry employs about 500,000 drivers together with a similar number of ancillary staff in warehouses, workshops and offices.

  Moreover the industry makes a major contribution to the exchequer through Vehicle Excise Duty (VED), fuel duty, Operators' Licence fees as well as Value Added Tax (VAT), income tax paid by employers, corporation tax and council tax on premises.


  Modern day lifestyles are heavily dependent on the ready availability of plentiful cheap and efficient freight transport. Without it retailers would not be able to offer the range of produce that they do throughout the year at acceptable prices (items that previously would have been available only on a seasonal basis) and manufacturers costs would be higher, leading either to more expensive goods for the consumer or to the loss of business to competition from abroad. Society and Government must accept that if they wish to reduce the movement of lorries on the roads, they must be prepared to accept significant changes to their lifestyles. That said, the road haulage industry is constantly seeking new ways to improve its efficiency and effectiveness and to reduce the impact that it has on the environment and on the community in general.

3.1  Efficiency

  Fuel efficiency is a key issue both for haulage companies and for the government (see also section 4). Both parties wish to see a reduction in the amount of fuel used—the Government primarily because this will reduce emissions and the transport operator because it will also reduce his costs. For many operators—particularly in the hire-or-reward sector—fuel represents the single biggest cost to his business. Achieving only an extra 0.3 miles per gallon therefore could be the difference between profit and loss.

  As a result companies are increasingly introducing measures to reduce fuel consumption—for example, providing advice and training for drivers on techniques to reduce fuel consumption; taking extra care in planning journeys to ensure the most efficient routes are taken; and frequently co-operating with other companies so as to reduce fuel consumption and empty running. Indeed the RHA in conjunction with its business partner runs an Internet Backload Service through which members can advertise or search for return loads between certain areas of the country.

3.2  Modal Shift

  Contrary to popular opinion, the road haulage industry is not opposed to the increased use of rail freight. Indeed, many hauliers are increasingly involved in logistics and distribution rather than simply road haulage and already make use of rail where it makes sense for them to do so. The RHA therefore supports the Government in its efforts to increase the amount of freight going by rail.

  However, it is important to be realistic about the extent to which an increase in rail freight would lead to a decrease in road freight. The majority of journeys, even where part of that journey is made by rail, begin and end by road. This is likely to remain the case for the foreseeable future. For this reason, (and for others set out in section 4) efforts in this area must focus on improving the attractiveness of rail rather than penalising road freight.


  As a consequence of current exchange rates and successive Governments' strategies of annual above inflation increases in fuel duty, the UK has by far the highest diesel duty rate in the whole of the EU. In addition, rates of Vehicles Excise Duty for the heaviest lorries (40 tonnes since 1 January 1999) are far higher than in any other EU country. The following table compares the rates of diesel duty and vehicle excise duty for the UK and the rest of the EU (Fuel duty figures are averages for 1999. The actual rate for the UK is currently 48.82 p/l).

EU Member State
Fuel Duty

  Figures for VED are for 40 tonne, five axle vehicles.

  The effect of the fuel duty strategy and the high levels of VED is to undermine the international competitiveness of the haulage sector. The progressively higher tax base is seriously eroding profit margins (which in any case are usually no more than about 3 per cent) and is forcing operators to consider the merits of registering their businesses and fleets outside of the UK—ie "Flagging out".

4.1  Fuel Duty

  Haulage companies have always been concerned about fuel duty levels because fuel can represent their single biggest cost—often as much as 35 per cent of their total business costs. Until 1998, the difference between UK fuel duty rates and continental rates only presented a significant problem for those hauliers operating internationally on a regular basis, since they were competing for those contracts with hauliers based outside the UK. In an attempt to minimise the disadvantage they face, hauliers involved in such contracts have adapted their business practices and now purchase nearly all of their fuel abroad. Whilst this helps the haulier by improving his competitive position, it does have obvious adverse consequences for the UK Exchequer in terms of fuel duty lost.


  The difference in fuel duty rates became a serious threat to all UK goods vehicle operators from July 1998, following the removal of all EU cabotage restrictions. This gave continental hauliers the right to seek domestic business in the UK, competing against UK hauliers. The much lower price of fuel available to continental-based hauliers has given them a competitive edge. Continuing increases in fuel duty will simply widen this advantage.

  Historically, only a relatively small proportion of goods is carried on domestic journeys by vehicles registered outside the UK. This fact had led the Government to the mistaken conclusion that the threat posed by the removal of cabotage restrictions and higher fuel duties was being over estimated. However, as industry representatives have argued strongly through the Road Haulage Forum, this assumption fails to take account both of the amount of cabotage work that was carried out in the UK prior to their abolition, without permits, and also of the effect of an ever-widening fuel price differential. As fuel on the continent becomes cheaper (relative to the UK) domestic operations within the UK will become increasingly attractive since continental based hauliers will find it easier to offer lower rates compared to UK hauliers.

  The Government's own figures are beginning to support this: the proportion of foreign-registered powered vehicles travelling to mainland Europe has risen from 51 per cent in 1992 to 62 per cent in the four quarters ending Q1 2000.

  The threat to domestic hauliers from continental-based operators using cheaper fuel is real. A typical tractor unit can legally carry enough fuel to travel at least 1,000 miles. On average that would represent close to a week's normal work for a UK-based unit. This problem is even more evident in Northern Ireland (see Memorandum to Northern Ireland Select Committee attached.[1]) Because only a land border separates the two countries, foreign-registered vehicles have no difficulty whatsoever in filling their vehicles with fuel purchased across the border and then operating in Northern Ireland. Of course many Northern Ireland based hauliers also buy all of their fuel south of the border and evidence suggests that the revenue losses to the Exchequer from this particular area alone are very significant. The RHA believes that many Northern Ireland hauliers will be particularly attracted to "Flagging out" their vehicles to Southern Ireland because they will reduce their operating costs significantly whilst suffering very little change to their operations.

Impact on UK Haulage Industry

  Concern about this issue has been at such a high level within the haulage industry that the RHA commissioned research from the Centre for Economics and Business Research Ltd (CEBR) The CEBR was asked to examine the economic consequences of the widening gap between the UK and European duty rates and to look at the feasibility of a scheme designed to achieve a level playing field. The results of this work are contained in the reports "Rebalancing UK Motor Fuel Duties" and subsequently up dated in "Fair Play on Fuel" and "Fair Play On Fuel 2000" copies of which are attached.1

  Essentially these reports show that if action is not taken, thousands of jobs will be lost in the UK haulage industry as contracts are awarded to foreign registered operators.

Impact on the UK Economy

  As well as looking at the consequences for the haulage industry, the CEBR looked at the knock-on impacts that this general lack of competitiveness in the haulage industry would have on customer and other industries. A macroeconomic analysis of the fuel duty differential showed that without action to redress the situation, the UK will suffer some very significant consequences amounting to the loss of over 50,000 jobs and a reduction in GDP of over £2 billion.


  The Government has justified fuel duty increases by the need to inflate prices to bring about a reduction in fuel use and so contribute towards the reductions in carbon dioxide necessary to meet international obligations on global warming. However, despite many years of sustained increases in real duty rates, there is no evidence that the policy is having any impact on traffic levels or CO2 emissions.

  Ironically, the price of fuel (at least within the haulage sector) does not affect the number or length of journeys made, nor the location of businesses relative to their markets. Manufacturers and retailers need to transport their goods whatever the price of fuel. But the strategy has no impact on foreign-registered hauliers since they do not purchase their fuel in the UK (because it is significantly cheaper in every other EU country). Thus the UK finds itself in the paradoxical situation whereby the same number of journeys are being made within the UK, with the same amount of pollution being emitted but with an increasing proportion of them being made by continental operators paying continental taxes.

  The same argument applies to the assertion that the rail freight market would be disadvantaged by a reduction in costs for road freight. Again, this would be likely to happen in any event, because foreign-based hauliers will be able to offer rates that neither the UK rail freight operators nor UK hauliers will be able to meet.

4.2  Vehicle Excise Duty (VED)

  Although strictly speaking outside the remit of the Committee's inquiry, the RHA believes that mention should be made of Vehicle Excise Duty since this contributes to the uncompetitiveness of the UK road haulage industry and thus has an effect on the overall UK competitiveness. VED currently accounts for approximately 4 per cent of the standing costs of a heavy goods vehicle. Minimum rates are prescribed by EU Directive 93/89 but, as the table above shows, UK levels far exceed these and the levels set by most other Members States. UK VED rates are calculated by taking account of the wear and tear contribution made by lorries to the infrastructure. Current methodologies for calculating VED result in rates that more than cover the road track costs of HGVs.

  Whilst the RHA does not disagree in principle with this method of calculating VED, the Government must recognise that, in the same way that fuel duty has no impact on foreign hauliers, VED penalises UK hauliers using UK roads whilst allowing foreign-registered hauliers vehicles to use (and inflict wear and tear on) UK roads free of charge. This is particularly important when considering the heaviest vehicles—40 tonne, five axled lorries—which are of the type most widely used by continental operators entering this country on an international journey. These vehicles are currently subject to an annual rate of VED of £3,950 far more than the amount imposed by every other EU State for the same vehicle.

4.3  Flagging Out

  As mentioned above, the consequence of the Government's current taxation policies is forcing many UK hauliers to consider registering their businesses and vehicles abroad in order to benefit from the lower rates of VED and fuel duty. Initially, Government representatives were sceptical about the attractiveness of such a scheme. They believed that other elements of taxation (eg corporation tax) which were lower in the UK would balance out the higher levels of direct taxes (fuel duty and VED). However, this assumption underestimated the importance of these elements in the overall costs of operating a haulage business.

  In March 1999 the RHA launched its own "Flagging Out" service to help its members register in another EU State. Whilst there are a number of requirements that operators must meet in order to meet EU legal requirements, the service has been extremely popular.


  The RHA believes that certain changes to Government policy are required if the haulage industry is to be saved from its current predicament and the Government is to prevent the loss of thousands of jobs and millions of pounds of revenue.

5.1  Essential User Rebate

  Full details of the Essential User Rebate, or EUR, are outlined in the reports "Rebalancing UK Motor Fuels", "Fair Play On Fuel" and "Fair Play On Fuel 2000" which are attached. But essentially the principles of the scheme are as follows: Essential Users (ie operators falling within the Operator Licensing system) would be able to claim a rebate on fuel used for business purposes equivalent to the difference between the UK rate and the EU average. Eligible mileage would be verified through scrutiny of the existing tachograph system and only those operators complying fully with all relevant regulations would be eligible to claim. This would have the advantage of removing the competitive disadvantage suffered by the UK and removing the negative impacts on the UK economy and on tax revenues. In addition, there would be significant road safety benefits since the opportunity to claim a rebate would be a substantial incentive to companies to comply with all the relevant requirements. Thus operating and safety standards within the industry would be raised. The CEBR has conducted further research in this area and believes it would be possible for the scheme to be at least self-financing.

  There is already a precedent for this type of rebate scheme. As well as the existing FDR (Fuel Duty Rebate) for buses in the UK, in January 1999 the French Government introduced a rebate for hauliers purchasing their fuel in France. The scheme was subject to a maximum of 40,000 litres and applied to vehicles over 12 tonnes. The specific reason given for introducing the scheme was a concern about the impact on the French haulage industry of higher diesel prices in France compared to their neighbours.

5.2  Costing the Essential User Rebate

  Since the EUR was first developed, the RHA came to believe that the direct costs of introducing an EUR would be more than off-set by the amount of revenue being lost to the UK Exchequer (or "tax leakage") as a result of the unfair competition from foreign-registered hauliers. There are a number of elements to this leakage—for example UK hauliers purchasing more fuel overseas and foreign-registered hauliers conducting more business in the UK whilst purchasing fuel and paying Vehicle Excise Duty abroad.

  The CEBR was asked to model these impacts for varying levels of price differential and to calculate how overall tax revenues would be affected. The results of the calculations are produced in full in "Fair Play On Fuel 2000". Table 1 below provides a summary. Column A shows the tax take for a differential of 31.9 p/l (the predicted differential for 2000) and Column B shows the position if the price differential is removed completely—effectively the position if an EUR was fully introduced.

Table 1


£ Million
Column A
Price differential of
31.9 p/l
Column B
Price differential of
0 p/l
Tax revenues (excluding leakages)
Cabotage in the UK by foreign hauliers
UK hauliers loss of international business
Loss from Northern Ireland cross-border fuel purchases
Loss from UK hauliers' purchases of fuel abroad
Macro impact of job losses
Impact on fuel usage
Impact on fuel efficiency
Actual tax revenues (after leakages)

  The difference between Column A and Column B represents the "cost" of an EUR. Table 2 presents these costs for 2000 and also for 2001 and 2002. In addition, it shows the figures both for a 100 per cent and a 90 per cent take up of the scheme.

Table 2


£ Million
Cost at
100 per cent
take up
Cost at
90 per cent
take up
Forecast for 2000 (31.9p)
Forecast for 2001 (35.7p)
Forecast for 2002 (39.9p)

  What these two tables demonstrate is that, as the RHA believed, if the price differential for 2000 is completely removed by introducing an EUR of 31.9 p/l, the Chancellor would actually increase the amount of tax received by the Exchequer by £136 million[2].Thus even with a 100 per cent take up of the scheme by hauliers, the EUR would be more than self-financing.

  Whilst the Essential User Rebate is the RHA's preferred option—and one which we believe would be relatively simple to administer—we certainly would not rule out other options designed to achieve the same objective, ie to bring the UK diesel rates into line with those of our European competitors.

5.3  Vehicle Excise Duty

  As outlined above, the RHA does not disagree in principle with the way in which VED rates are calculated by the Government, but we believe that action must be taken to ensure that UK operators are no longer unfairly penalised as compared to their European competitors.

  Whilst we appreciate that it is not possible simply to charge foreign-registered vehicles to enter the country there are a number of ways in which Governments can introduce charges that apply to all vehicles using the roads in a particular country eg the Eurovignette. Clearly such a scheme would do nothing to redress the balance (and therefore would be unacceptable to the RHA) unless any new charges replaced the existing VED scheme.


  The underlying reasons for the RHA's Essential User Rebate and the "Fair Play On Fuel" campaign will by now be clear. The campaign has incorporated discussions with and presentations to Government Ministers and officials, Opposition spokespersons, MPs from all parties and other interested organisations. The case for action outlined by the campaign and the reports was so convincing that a number of other business organisations and trade bodies joined the RHA in expressing concern about this issue.

6.1  The Road Haulage Forum

  Pressure on the Government was such that in March 1999, the then Transport Minister Dr John Reid announced the establishment of a "Road Haulage Forum" to examine the industry's concerns in greater detail and to propose potential solutions. The RHA has played (and will continue to play) its full part in the work of the Forum and its working groups. Indeed, in July 1999, the economic work described in the "Rebalancing UK Motor Fuel Duties" and "Fair Play On Fuel" was presented to the competitiveness working group. At this meeting Government officials were given the opportunity to scrutinise the base data and to question Professor Douglas McWilliams of the CEBR on the methodology employed. This examination established the validity of the data.

  Since that date there have been numerous additional meetings of the Forum and its sub-groups and the RHA has continued to play an active role. However, sadly the Forum has achieved very little in practical terms. It is true to say that the RHA welcomed the Chancellor's decision to reduce Vehicle Excise Duty and to abandon the automatic fuel duty escalator in favour of a policy whereby decisions would be taken at each Budget. But despite this, the UK still has the highest rates of VED in Europe and, at the March Budget we still saw diesel duty increase by xx per cent. Thus hauliers have seen little benefit from the process and are still going out of business.


  Against this background it is not difficult to see why some hauliers, farmers and others were so disillusioned that they decided to take matters into their own hands and began blockading fuel depots. Whilst the RHA does not itself organise nor take part in such action, we fully understand the frustration that these people felt after years of Government inaction. The RHA will do everything within its power to help bring the situation to a peaceful conclusion. But this cannot be achieved without action from Government.


  The UK road haulage industry plays an essential and integral part in our everyday lives. Yet Government policies are—albeit perhaps unintentionally— undermining the industry's ability to survive. The RHA welcomes the Committee's inquiry and hopes that this will lead to positive action from within Government, very soon. If such action is not taken to address this situation, thousands of jobs and hundreds of millions of pounds will be needlessly lost this country.

October 2000

1   Not printed. Back

2   The calculations assume that the average UK-registered vehicle used for international journeys and those visiting from abroad will be fitted with 1,000 litre fuel tanks. The maximum that can legally be carried is in fact 1,400 litres and many lorries on international journeys are equipped with tanks of this capacity. Back

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