House of Commons - Trade and Industry

Select Committee on Trade and Industry Fifth Report

FIFTH REPORT

The Trade and Industry Committee has agreed to the following Report:—

IMPACT ON TRADE AND INDUSTRY OF MOTOR FUEL TAXATION

1. In September 2000 there was a wave of protest against the price of motor fuel. Oil refineries were picketed, deliveries blocked, and fuel ran short. The subsequent disruption, the 'fuel crisis', sparked a nationwide debate on the price of fuel and, in particular, the level of fuel taxation in the UK.

Our inquiry

2. On 25 September 2000, we announced an inquiry into the impact on trade and industry of motor fuel taxation, concentrating on the effect taxation levels were having on the competitiveness of UK enterprises. We heard oral evidence on 31 October 2000 from BP Oil UK, Shell UK, Texaco Ltd, Total Fina Elf and Esso UK plc; the Confederation of British Industry; and the British Retail Consortium. On 1 November 2000 we heard oral evidence from the Road Haulage Association; the Petrol Retailers Association; the Freight Transport Association; representatives of Farmers for Action and the People's Fuel Lobby; the National Farmers' Union; the Transport and General Workers' Union; and the Confederation of Passenger Transport UK.

3. We had sought to hear oral evidence from Department of Trade and Industry and Treasury Ministers as early as possible thereafter. The Government provided a brief Memorandum on 14 December 2000. On 14 February 2001 we heard oral evidence from Stephen Timms MP, Financial Secretary to the Treasury and Peter Hain MP, Minister for Energy, Department of Trade and Industry.

The work of other Committees

4. In July 2000, the Environment, Transport and Regional Affairs Committee published a Report on the road haulage industry, following an inquiry carried out in March 2000 by its Transport Sub-Committee.[1] The Report examined amongst other things: the role of the road haulage industry, the way it operates, its contribution to the UK economy and its impact on the environment; and the impact on industry of current and past rates of vehicle excise duty and levels of duty on fuel.[2] The Government's response was published on 9 February 2001.[3] We have, of course, drawn on these documents, including the evidence given to the Transport Sub-Committee. On 2 November 2000, the Environmental Audit Committee announced an inquiry into the Pre-Budget Report, focussing on the implications of the level of motor fuel duty for sustainable development.[4] We have had access to their evidence, including the oral evidence given in December by the Financial Secretary, Stephen Timms MP. That Committee published its Report on 5 March 2001.[5]

Scope of this report: vehicle taxation

5. We received evidence on some vehicle taxation issues, most of which had been covered in the inquiry by the Transport Sub-Committee, and on which we do not report further.

— We received some evidence on 'flagging out': the practice of UK hauliers registering their vehicles in other European countries to avoid paying UK Vehicle Excise Duty (VED). The Road Haulage Association (RHA) stated that, as a consequence of the Government's current taxation polices, many UK hauliers are being forced to consider registering their businesses abroad in order to benefit from lower rates of VED and fuel duty.[

— The level of VED was also raised by a number of witnesses. The RHA noted that VED currently accounts for approximately 4% of the standing costs of a heavy goods vehicle.[8] The British Retail Consortium (BRC) pointed out that, at almost £4,000, VED for Heavy Goods Vehicles (HGVs) in the UK was nine times higher than in France and thirteen times higher than in Spain.[9] The Chancellor announced in the Pre-Budget Report that the Government would "introduce a reformed system of lorry VED in Budget 2001".[10]

— The Confederation of Passenger Transport (CPT) expressed concern about the Fuel Duty Rebate; the 75% reduction on fuel duty that is applicable to bus but not coach operators.[11]

— We received some evidence on the feasibility of introducing a 'vignette' or 'Britdisc'; a levy to be charged to foreign hauliers for using UK roads. Some European countries already operate a 'Eurovignette' under which a single payment gives hauliers access to the motorways in those countries.[12] The Chancellor announced in the Pre-Budget Report that such a scheme would be introduced.

Scope of report: environmental impact

6. In evidence to us, witnesses disagreed about the success of fuel taxation in improving the environment.

— The Energy Savings Trust stated that "despite anecdotes to the contrary, fuel prices have a significant environmental effect".[

— BP questioned the environmental efficacy of motor fuel taxes "mainly because they have so little effect on consumer behaviour".[16] Mr Steve Polkey of Esso told us that some of the policy aims of the fuel tax are "questionable" as "the fuel tax is a relatively blunt instrument".[17] The RHA commented that "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".[18] The FTA believed there was little evidence that high fuel duties have significantly reduced problems such as congestion.[19] The Post Office noted that, whilst they recognised the environmental benefits to be achieved from a reduction in the consumption of fossil fuels, "it would appear that increasing the price of fuel in isolation has failed to deliver any of the environmental benefits which the Government desires".[20] The British Retail Consortium stated that "duty increases on their own, without the provision of alternatives, represent a limited and blunt instrument with which to combat congestion and environmental pollution".[21]