Memorandum submitted by the Federation
of Small Businesses
There is no doubt that the high cost of fuel
is the most pressing issue facing small businesses at the current
In a recent survey responded to by 21,858 FSB
member businesses, transport was one of the issues on which business
owners were questioned, the results of which are reproduced below.
In total, 95 per cent of respondents were dissatisfied
with fuel costs (the highest dissatisfaction rating for any issue
the survey covered) and 75 per cent were dissatisfied with road
tax. Only 1 per cent and 5 per cent respectively were satisfied
with both these issues.
It should also be noted that the survey as carried
out prior to the Dump the Pump campaign began in August 2000 and
the fuel protests of September 2000.
Source: Barriers to Survival & Growth in UK
Small Firms, October 2000. Survey carried out independently by
the University of Strathclyde for the FSB.
Small businesses accounting for 0-9 employees account for
95 per cent of all UK businesses. The average small business owner
is a typical motorist.
Every one pence per litre rise in diesel duty increases industry's
transport bill by £120 million.
UK motorists pay an average of 80.3p per litre for unleaded
petrol with 60.8p going to the Treasury in tax. A typical 60 litre
fill-up benefits the Exchequer to the tune of £36.47. The
next most expensive petrol in the EU is in the Netherlands at
71.12p per litre, though Dutch motorists pay just 46.7p in tax.
At these prices, a 60 litre fill up would be £5.49 cheaper
than in the UK. At the other end of the scale, Spanish drivers
pay the equivalent of 50.5p per litre fill up nets the Spanish
government £17.67less than half the tax UK motorists
Diesel users are even harder hit. Throughout Europe, diesel
is taxed less heavily than unleaded petrol, due to its reduced
"greenhouse gas" emissions. Yet British diesel users
pay 60.8p in fuel duty and VAT for every 80.7p litre.
Even French diesel usersthe second worst off in terms
of tax contribution paying 32p per 53.6p litrepay just
£19.23 in tax from a 60 litre fill up, compared to £36.50
tax in the UK.
The table below outlines the price of fuel in other European
||Of which tax||Diesel ppl
||Of which tax||Annual revenue per
*ppl=pence per litre
**1997, latest figures available
***Investment relative to GDP (1st=highest) 1994
Sources: European Commission/Automobile Association
Small businesses find it near impossible to absorb or pass
on costs when fuel prices rise, unlike large companies, making
them uncompetitive against large competitors and foreign companies.
A member of the FSB, a small company which runs a mail order
service with around 15,000 UK customers, 250 trade accounts and
exports to 12 countries distributes from its own premises.
It uses a number of different carriers (eg Royal Mail) for
UK and overseas deliveries and for larger overseas consignments
a freight forwarder. All these companies have recently subjected
a surcharge on the small business to cover the increased cost
of fuel. One company has levied nearly 6 per cent in two months.
The small company is unable to pass these costs on to customers
as prices have to be set and this is normally done annually. The
cost of changing prices every few months would be prohibitive
in terms of printing costs and advising customers of the changes.
In order to remain competitive the company has to absorb these
costs but planning ahead is near impossible.
According to the accountancy firm Chantrey Vellacott DFK,
the windfall from rising oil prices means that for every $1 rise
in the world oil price the Treasury nets £330 million. Chantrey
Vellacott calculate that this means the Government could afford
to cut fuel duty by 8p per litre, or 36p per gallon.
The FSB believes that to make small business competitive
there should be a cut of 8p duty per litre with immediate effect
and a cut to bring the price of fuel by Christmas down to not
higher than 50p per litre.
The Government dismisses the high cost of fuel by saying
that business taxes, overall, are higher in Europe and so the
fuel prices must be seen within a wider context.
But for the majority of small businesses, this argument is
disingenuous. Most small businesses are unincorporated; ie they
do not benefit from the low rates (10 per cent and 20 per cent)
of corporation tax. These business owners pay tax at income tax
rates, 22 per cent and 40 per cent. Only 1.2 million UK businessesout
of a total of five million businessesare limited companies,
most of these being large enterprises. A total of 200,000 small
companies, a generous estimate, benefit from the 10 per cent rate
of corporation tax.
The Treasury estimates that fuel duty alone will bring in
a total of £22.3 billion this year. But as well as high fuel
duty and fuel prices, road tax (Vehicle Excise Duty) nets the
Exchequer another £4.9 billion, bringing the sub-total to
Insurance premium tax, now totalling 5 per cent on premiums,
generates another £232.5 million from the private motorist
According to the Automobile Association, when UK drivers
buy a new car or get it serviced, UK motorists pay more VAT at
17.5 per cent. This, according to the AA, brings the true total
close to £36 billion.
If this is divided among the driving population, the average
British motorist pays far more than most European counterparts.
The most recent data, gathered in 1997, showed that only Germany
collected more cash from drivers than Britainmore than
£26 million at today's exchange rates compared to £19
billion in the UK. But divided by numbers of vehicles on the road,
German owners contributed £648 in tax compared to £869
in the UK, some £221 less than UK vehicle owners.
The table on page 137 shows that only Denmark and the Netherlands
pay more. But the closest competitors to UK small business, France
and Germany, pay far less (£706 and £648 per annum respectively).
Fuel duty has increased dramatically in recent years, so the competitive
disadvantage is likely to have widened further.
According to the Freight Transport Association, each 40 tonne
truck in the UK pays £25,800 per year in Vehicle Excise Duty
and fuel duty, representing 30 per cent of operating costs. In
1999-2000 the Government will take £4.7 billion from the
road freight sector in fuel duty and VED.
A French operator using cheaper continental fuel and with
lower VED has a 14 per cent cost advantage over a UK counterpart.
UK operators pay £5,264 more VED per 40 tonne vehicle than
their French counterparts (£5,750 compared to £486).
UK operators pay three times the EU average for VED and, for a
40 tonne gvw articulated vehicle, up to 12 times the rate of other
UK hauliers also have to pay for using continental road networks.
For example, for a six axle truck the daily levy is approximately
£4.18 per day.
The FSB proposes a BRIT-disc to level the playing field between
UK and foreign hauliers.
The FSB has been calling for a substantial time for its proposed
"BRIT-disc" scheme to level the playing field when it
comes to the price of fuel.
A common problem is that foreign hauliers fill up their tankers
with petrol on the Continent, then travel over to the UK and complete
their business without filling up at UK fuel stations. There were
760,000 foreign vehicle trips to the UK in the four quarters ending
Q1 1999a 57 per cent increase since 1996. Of the 420,000
goods vehicles in the UK, 80,000 are at or above 38 tonnes. Foreign
vehicles on the UK's roads swell the number of trucks on the UK's
roads at any one time by 9,000one in 10 of the heaviest
The FSB believes foreign hauliers should have to pay for
a BRIT-disc, which would allow them to operate in the UK. This
would remove the competitive advantage that foreign hauliers have
due to cheaper fuel abroad. Revenue received from BRIT-disc should
go to the Treasury and subsequently cover a cut in fuel duty or
Small businesses in the independent petrol retailer sector
are charged high prices for fuel. Often this price is more than
the price at which large superstores are selling fuel to the consumer.
Another FSB member, an independent retailer in Lincolnshire,
is paying 80.07p per litre for supplies of four star unleaded
petrol2p more than the nearest superstore in Skegness which
is selling it to the consumer at 77.9p (or 67.9p with a £40
spend in-store). The nearest superstores are 10 miles away.
Independent retailers' meagre profit margins are being eroded.
This situation obviously has implications not just for the competitiveness
of independent petrol retailers, but for rural businesses and
The FSB proposes that fuel suppliers should be forced to
sign up to a maximum wholesale price for fuel sales to protect
local independent retailers and rural motorists.
The FSB recommends that the Government examine the suggestion
from Chantrey Vellacott for a "road fuel price regulator",
which would allow fuel prices to be kept down in an economically
credible way and at no cost to the Government.
Essentially, the RFPR uses as its basis the fact that each
dollar on the price of a barrel of crude oil raises the price
of a litre of road fuel at the pump by two thirds of a penny.
Simultaneously, each dollar on the price of a barrel of crude
oil increases the Government's tax take from North Sea oil tax
revenue sufficiently to fund a cut in the level of road fuel duty
of around two thirds of a penny per litre.
Under the RFPR, the price of crude oil would be monitored
toward the end of each month to establish a bench mark price and
the load of road fuel duty would be set for the following month
with reference to that benchmark price.
In view of the fact that the March 2000 Budget Statement
assumed a price of crude oil of $22 per barrel, for the purposes
of the public finances, this would be taken as the basis point.
Assuming the RFPR started on 1 December 2000, then for every dollar
per barrel that the crude oil price at the end of November exceeded
$22, two thirds of a penny would be taken off road fuel duty as
of 1 December 2000.
In each subsequent month, the level of road fuel duty would
fall by two thirds of a penny per litre for each subsequent downward
movement of $1 in the oil price. In this way, the price of fuel
at the pump would be smoothed out, contributing to economic stability.