Memorandum submitted by the Institute
for European Environmental Policy
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
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
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.
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
RELATING DUTY RATES TO PER CAPITA GDP
|Petrol||GDP per capita/price (divided by 100)
||Diesel||GDP per capita/price (divided by 100)
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
imposedif 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
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
hauliersa 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
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
16. Some sort of essential user rebate is being pressed
by hauliers as a possible solution to their problemsa 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
"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
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.
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
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