Select Committee on Trade and Industry Appendices to the Minutes of Evidence


APPENDIX 4

Memorandum submitted by the Institute for European Environmental Policy


FUEL DUTIES IN EUROPE

Introduction

1.  The Institute for European Environmental Policy (IEEP) is an independent, non-profit policy studies institute, specialising in environmental policy in Europe. One of our areas of expertise is the environmental dimension of European and UK transport policy, which includes fiscal policy.

  2.  The recent fuel protests in the UK were mirrored in many countries across Europe. Hauliers protested against the adverse impact of rising fuel prices on their competitive position in the Single Market in Belgium, France, the Netherlands, Spain, Germany, Sweden, Italy, Ireland, Norway, Poland and Slovenia. Clearly all felt themselves to be adversely affected by rising prices, but equally clearly, not all could have been placed at a competitive disadvantage by these increases relative to the others.

  3.  A range of concessions were swiftly offered to road hauliers in France, Italy, Belgium and the Netherlands. Germany and Sweden refused to follow suit, and the UK rejected reactive changes in duty levels at least. At the time of writing, the UK Government is considering how to respond in its pre-budget statement.

The relative costs of European road hauliers

  4.  Earlier this year, IEEP completed a survey for the Swedish Environmental Protection Agency on the state of vehicle and fuel tax policy across Europe, entitled EU vehicle and fuel tax policy. The Committee has already received a copy of this report[6]. It was completed before the crisis arose, and was designed to address broader aspects of transport taxation policy in the context of the ongoing Intergovernmental Conference on EU Treaty reform, and Sweden's upcoming Presidency of the Council of Ministers. Amongst other things, however, it considered evidence from a range of sources on relative tax levels in different European countries, and has therefore received increased attention in recent weeks.

  5.  Our analysis clearly showed that fuel duty rates in the UK were the highest in Europe, especially for diesel. Several additional points emerged, however, One was that the differential in prices was much less when compared to levels of national GDP (a proxy measure of income and wealth), as this table showed:

RELATING DUTY RATES TO PER CAPITA GDP

Petrol
GDP per capita/price (divided by 100)
Diesel
GDP per capita/price (divided by 100)
Luxembourg
5.4
Luxembourg
6.7
Denmark
3.1
Denmark
4.1
Austria
2.9
Austria
3.8
Ireland
2.9
Belgium
3.8
Germany
2.7
Germany
3.7
Belgium
2.6
Netherlands
3.3
Spain
2.4
France
3.3
France
2.3
Ireland
3.0
Italy
2.3
Italy
3.0
Netherlands
2.3
Finland
3.2
Finland
2.2
Spain
2.9
Sweden
2.2
Sweden
2.8
Greece
2.1
Greece
2.8
United Kingdom
2.0
Portugal
2.7
Portugal
1.9
United Kingdom
2.0


  Source: Derived from Eurostat and OECD data.

  6.  Our report also identified other areas in which the UK has tax and cost advantages over other EU Member States. For example, employment and corporate taxes are lower; administration costs are relatively low; and the UK has only a very few toll bridges and tunnels, in contrast to the extensive toll road networks of France, Italy, etc, which add significantly to the cost of moving goods there. Overall, therefore, it concluded that the supposed cost disadvantages to UK hauliers were far less clear cut than the level of fuel duty alone would suggest.

  7.  Since this work was undertaken, the differential in fuel pump prices between the UK and its neighbours has in fact increased by several percentage points. This is more than accounted for by the fall in value of the euro relative to sterling over the past year. That is, the relative shift is not attributable either to the underlying price of oil or to the levels of duty imposed—if anything, rather the contrary. The difference is real enough, but is in line with changes in other costs (eg labour costs) which all UK industry is facing because of the falling euro.

  8.  Other changes have also occurred in recent months, including a significant reduction in VED on certain classes of HGV in the UK, and the imposition of shorter working hours in France. These too have changed the cost balance between the UK and its neighbours, in this case to the UK's advantage. As a result of all this, the Freight Transport Association (FTA) in its evidence to the Committee calculates that UK hauliers currently face a 5 per cent cost disadvantage relative to France, and around 10 per cent relative to Belgium and the Netherlands. This they argue is still very significant, in an industry whose profit margins are typically under 5 per cent.

  9.  It remains difficult to assess the impact of these differences in practice, however. Clearly, UK hauliers carrying goods between the UK and the Continent (or vice versa) increasingly find themselves in direct competition with other EU hauliers as the Single Market becomes a reality, and cost differences are therefore important. However, detailed comparisons are difficult, and our research revealed a range of estimates of the average running cost in different countries, depending for example on the class of vehicle selected for comparison.

  10.  Furthermore, the FTA notes that these cost disadvantages arise principally from the UK's higher diesel prices. In saying this, however, they appear to be basing their estimates on UK fuel prices only. That is, they do not seem to have taken account of the fact that when driving on the Continent, UK hauliers have as much opportunity to benefit from cheaper fuel as their competitors, while retaining the other tax advantages of the UK.

  11.  International haulage also comprises only a very small proportion of total road freight activities in the UK. The majority of freight hauls take place within the UK, and here, not surprisingly, foreign competition is far less of a factor. Indeed, recent official statistics indicate that only 0.06 per cent of haulage trips within the UK were undertaken by foreign hauliers—a tiny proportion in comparison to the levels experienced in most other EU countries. The FTA counters that the threat of foreign competition alone is sufficient to drive down the prices which UK hauliers can charge, but it is difficult to assess the scale of this effect in the absence of any firm evidence either way.

  12.  It is also difficult to distinguish effects arising from foreign competition from those which result simply from the chronic overcapacity and acute price competition which seem to bedevil the UK haulage industry. It is perhaps noteworthy that the Swedish government, while rejecting duty cuts, has promised its protesters that it will take measures to help with restructuring of the road haulage sector.

The lack of demand for CO2 improvements

  13.  From both the environmental and competitive perspectives, it will clearly be preferable in the medium term to reduce fuel consumption rather than reduce fuel costs. There are many things that can be done to reduce diesel use in freight transport, such as technical modifications to improve aerodynamics; better driver training; routine maintenance; routing and logistics; combined transport; etc. While some of the larger UK hauliers lead the way in logistics management, many other measures are less well taken up, and small scale operations are currently poorly placed to take advantage of some of the techniques available.

  14.  A 1998 survey by the government-sponsored Energy Efficiency Best Practice Programme (EEBPP) showed that only one in three fleet managers have energy efficiency programmes, and only 12.5 per cent of the UK truck fleet was involved in the EEBPP. Only 30 per cent of respondents knew their fleet's total fuel expenditure, and only 20 per cent knew their total fuel consumption (which itself calls into question some of the claims which have been made on the impact of fuel duty). Clearly the majority who do not have this baseline information are in no position to effect economies, and do not attach much importance to this issue. In contrast, those who followed EEBPP advice on fuel efficient practices had been able to cut their fuel bills by 25 per cent over five years. Evidence also suggests that merely by logging the fuel consumption of individual drivers, fuel use is reduced.

  15.  Turning to vehicle technology itself, research from the Energy Technology Support Unit (ETSU) suggests that there is still significant scope for fuel efficiency savings in trucks, eg through use of lighter materials. The effect of these will be to give extra carrying capacity to a truck of the same gross weight and engine power. Higher fuel prices should stimulate this demand, but instead there still tends to be an emphasis on engines with higher power output as their technology improves. Some manufacturers do market their vehicles partly on the basis of fuel efficiency, but this is not always a major selling point. Improved aerodynamics could also be applied to many existing HGVs through retrofit kits.

Mechanisms to rebalance costs for international haulage in the UK

  16.  Some sort of essential user rebate is being pressed by hauliers as a possible solution to their problems—a 15p per litre reduction through an "essential user rebate" is suggested. It should be stressed, however, that the European Commission is very unhappy about similar arrangements which have already been made in France, Belgium and the Netherlands in response to recent protests, and is known to be scrutinising them very carefully on grounds of fair competition and state aid rules. There is therefore a distinct possibility that they will be forced to go back on these deals, and the UK could suffer a similar fate if it follows this route.

  17.  Another suggestion which has already been widely mooted is a "Britdisc" licence which would have to be paid by foreign hauliers to use UK roads, in order to offset their cost advantage and balance out the UK's relatively high rates of VED (which to an extent reflect road track costs). However, it appears very likely that a separate charge applied only to foreign hauliers would be ruled illegal under the so-called "Eurovignette" Directive (1999/62/EC), which establishes rules and allowable rates for VED and road tolls in the EU. Article 7(4) of this Directive states that:

    "Tolls and user charges may not discriminate, directly or indirectly, on the grounds of the nationality of the haulier or the origin or destination of the vehicle."

  18.  Instead, therefore, such an approach would probably require the UK to join the existing Eurovignette scheme. Under this system, maximum rates of road user charges are specified, dependent on a vehicle's size and level of emissions. These charges must be applied to domestic as well as overseas operators. Monthly and weekly charges should be in proportion to the duration of the use of the infrastructure, and a daily charge is set at eight euros.

  19.  For UK operators, the annual charge could be offset by a corresponding reduction in the VED, as the UK rates are well above the minimum levels specified in the Directive. The Treasury is opposed to such a move, arguing that the cost of administering a scheme for overseas hauliers entering the UK would outweigh the income gained. This would however be a useful start in tackling damaging competition, and the costs would be easily covered by the income from HGV duties overall. The Transport Select Committee has already argued for this approach, suggesting that the UK should joint the Eurovignette and then explore all avenues to secure an increase in the chargeable rates, including an amendment to the Directive. The rates are to be reviewed in 2002.

Conclusion

  20.  From an environmental perspective in particular, measures to tackle vehicle technology and driver behaviour, plus additional incentives to help reduce the CO2 intensity of road freight are far preferable to reductions in fuel duty. The latter would contribute to a "race to the bottom" in terms of fuel duty rates, making it increasingly difficult for all European states to tackle CO2 emissions from the transport sector. There are alternative measures available which could help safeguard competitiveness without major cuts in fuel duties. Overall, a more positive approach to fuel economy could yield both running cost reductions and lower CO2 emissions simultaneously.

30 October 2000


6   Not Printed Back


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 15 March 2001