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


Memorandum submitted by The Royal Academy of Engineering


  1.1  The Royal Academy of Engineering welcomes the opportunity to submit evidence to the Trade and Industry Committee's inquiry into the "Impact on Trade and Industry of Motor Fuel Tax". The response which follows is a collation of personal views expressed by Fellows with direct experience of both the manufacturing and distribution industries. The views expressed are not necessarily representative of all Fellows of the Academy.

  1.2  Fellows commented on the impact of high fuel prices on manufacturing industry and the impact of higher fuel prices in the UK on the distribution industry compared to other EU countries. The breadth of UK industry and the differing impact on different sectors require that this memorandum be of a general nature.


  2.1  The impact of transport costs varies from sector to sector, but generally they are of low significance to manufacturers of high value goods and are of more importance to manufactures of low value goods. Transport costs as a proportion of all costs may vary from 2 per cent in areas such as pharmaceuticals to 10 per cent in areas such as automotive industries. However, direct costs resulting from the increase in fuel prices are unwelcome and adversely affect profitability.

  2.2  Whereas rising fuel costs have encouraged companies to find ways of reducing mileage and hence emissions, many have now reached a plateau with no further savings possible. Thus further fuel price increases cannot be fully mitigated by further reductions in mileage. Areas where little further improvement can be made include transport of personnel (cost of audit visits, key technical staff, sales forces etc).

  2.3  There is concern that increased staff travel costs will result in higher wage claims, adversely affecting competitiveness.

  2.4  The UK currently enjoys the advantage of a flexible and mobile workforce and much inward investment has been attracted on this basis. Rising transport costs for that workforce can only make it less mobile and so erode the advantage.

  2.5  Over time high fuel prices, other things being equal, will tend to favour manufacturing in geographical locations closer to their markets as transport costs become higher relative to the saving associated with manufacturing in a less expensive location. Conceivably, this may result in an advantage to firms in the South East closest to the largest markets.


  3.1  Fuel costs represent less than 30 per cent of the overall cost of running a fleet of vehicles but are more significant for the transport sector than for industry as a whole. It is not the fact that fuel prices are high that impacts on the competitiveness, but that they are higher than for competitors based in other EU member states.

  3.2  Across the EU the most variable costs of operating a fleet of vehicles are vehicle excise duty, tolls and fuel with fuel being the most significant. Since the UK Government accepted the principle of cabotage[7] and UK operators have been exposed to competitors with lower fuel costs, benchmark haulage rates have been depressed. Consequently, UK haulage rates have fallen by nearly 20 per cent relative to road freight costs.


  4.1  The function of the fuel price escalator has been to encourage industry and the public to be more economical in their use of fuel, and hence reduce emissions of greenhouse gases and other pollutants. Where there is a difference in the cost of fuel for any activity between geographical regions there is a danger that the activity will be exported. No net reduction in emissions will be achieved and the area incurring greater costs will lose economic activity.

  4.2  It is unacceptable that the UK should bear the highest fuel tax in Europe and risk losing economic activity to other EU member states.

  4.3  It is the relative difference in fuel prices which is of concern to Fellows rather than the actual price. A suggested solution to these concerns is a rapid harmonisation of fuel duties across the EU.

  4.4  Economic instruments can have a role in the solution of environmental problems but need to be matched with incentives to modify behaviour rather than taxing an activity out of existence. Incentives should be put in place to encourage new, cleaner technology and its uptake. Further funding for research and development of these technologies is also essential.

  4.5  Long term, stable policies in this area will allow industry to prepare for and adapt to the changes necessary to safeguard the environment whilst maintaining industrial competitiveness.

October 2000

7   Cabotage-The right given by a country to an operator domiciled in another country to carry goods or people between two points wholly within the borders of the first country. 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