Overall impact on British trade
19. British business buys over half the motor fuel
that is sold in the UK. Transport costs are roughly five to ten
per cent of overall business operating costs, although they vary
from sector to sector.
In oral evidence, the Minister of Energy said that this figure
included the cost of keeping the vehicles on the road, the cost
of labour, the associated cost of physically moving goods and
"if you just identify fuel for these purposes you find it
comes much lower".
Figures should also take into account the spend on fuel for company
cars. Mr Stringer of the Confederation of British Industry (CBI)
told us that the amount of duty alone paid by companies for fuel
used in cars was around £3.3 billion a year.
In service industries these costs are evidently significant. The
Government's Memorandum to us said that the impact of motor fuel
taxation on competitiveness will depend in part on the importance
of road transport costs to the entire economy. Government calculations
show that industry spend on transport fuels in 1998 amounted to
This represents broadly 1% of the value of output. Looking solely
at road fuels, the Government estimates that the spend on road
fuels directly amounts to 1.3% of the value of output in the productive
Direct spend on road fuels by industrial sectors and road haulage
operators amounts to just over £4bn a year in manufacturing
and just over £20bn by industry as a whole.
In oral evidence, the Minister for Energy cited some figures for
other sectors: in response to our request, detailed figures were
subsequently provided. These show that for some industries transport,
and so fuel, was a significant cost.
Spend on road fuels as a proportion of the value
of output in selected industrial sectors:
|Some industry sectors
||% of total costs accounted for by fuel costs
|Cement, line and plaster
|Plastics and synthetic resins
|Shipbuilding and repair
|Iron and steel||0.9%
20. The impact of fuel prices on competitiveness
is directly related to the proportion of a business's costs attributable
to fuel and the relative extent to which it can pass on or reduce
those costs compared to its competitors. The Federation of Small
Businesses (FSB) stated in October 2000 that "there is no
doubt that the high cost of fuel is the most pressing issue facing
small businesses at the current time".
They went on to say that small businesses find it difficult to
absorb or pass on costs when fuel prices rise, unlike large companies,
making them uncompetitive against larger competitors and foreign
The FSB cited the example of a small mail order company which
has faced surcharges levied by mail carriers to cover the increased
cost of fuel: one company levied nearly 6% in two months. The
company is unable to pass these costs on to customers because
the prices have been set in advance.
21. The CBI told us that they had expressed concern
about the level of fuel duties and vehicle taxation in the UK
for two or three years.
They estimated that the duty paid by business in its purchase
of fuel had gone up by about £2 billion in the last three
The Petrol Retailers Association (PRA) were of the opinion that
"industry across the UK has been disadvantaged when competing
in Europe whenever road transport fuels have featured as a major
part of the cost".
The Association of International Courier and Express Services
(AICES) told us that whatever the cost of fuel, their members
will have to purchase "with the knowledge that these costs
will eventually be passed on to customers". Unless costs
are managed effectively "AICES members will either find themselves
unable to compete or with customers who can no longer afford their
In their Pre-Budget submission to the Treasury on fuel taxation
levels, the British Chambers of Commerce cited a number of examples
of the impact of high fuel duties on business competitiveness,
business in West Sussex reported that its road freight charges
had increased by a third; as a result it expected to lose a major
contract to a French rival;
a port in the South of England said that
its fuel costs had risen by a third and that its storage space
was being used up because of hauliers' bankruptcies;
a Doncaster engineering company's fuel
costs had risen by around £30,000 per year over the last
two or three years, but it had not been able to instigate price
rises itself and hence has seen its margins squeezed. Fuel now
accounted for over 25% of all its costs, excluding labour.
22. The Government's Memorandum to us asserts that
the cost of spend on road fuel is such a small proportion of total
costs that "the impact in practice on trade of a change in
a part of road fuel costs in likely to be very small".
As to the impact on overall relative cost competitiveness, "changes
in motoring taxes are likely to be swamped by wider changes that
influence relative costs such as shifts in productivity and earnings,
and by developments in product and factor markets affecting the
23. Companies that are heavily reliant on road
transport, particularly small companies, will inevitably be hit
hardest by high fuel taxation levels. In some sectors, and in
rural areas, rises in fuel taxation can be the straw which breaks
the camel's back. However, we have received no conclusive evidence
to show that the current level of motor fuel taxation has rendered
UK business as a whole less competitive.