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


Memorandum submitted by the Railway Development Society


  1.1  The Railway Development Society (RDS) is an independent national organisation campaigning for more and better rail services, to enable more people and freight to travel by rail rather than road. Together with the members of many rail user groups affiliated to RDS we represent 20,000 rail users.

  1.2  RDS is pleased to give evidence to the Trade and Industry Select Committee on the matter of fuel taxation. RDS is primarily concerned that if road haulage becomes cheaper due to lower taxation, the viability of freight by rail will be undermined. RDS is of the view that motorised road traffic does not cover the full costs it imposes on society, so any lowering of fuel taxation per se would not go any way towards addressing the social issues surrounding fuel taxation.

  1.3  RDS is also extremely concerned that lowering taxation on fossil fuels sends the wrong message. Climate-changing energy sources should be discouraged by high taxation so that there are incentives to reduce pollution. A significant proportion of the money collected should be ploughed back into funding alternatives: public transport, freight by rail, renewable energy, and lower-emission fuels.

  1.4  Uniformed public opinion, fuelled by the media, believes that the cost of road fuel is excessive and is clamouring for a general reduction. Over and above this, the road haulage industry is pressing for concessions for themselves alone. The evidence offered in this document will endeavour to set out some counter arguments and a possible solution.


  2.1  The road lobby often puts forward the argument that only a fraction of the revenue collected in taxes by the government is used for road construction. The figures they are keen to quote are £6 billions spent on roads compared to £32 billions collected in taxes. However, this is a spurious argument fuelled by misleading figures.

  2.2  Firstly, there is no "ring fencing" of taxation in this country. The total sum of taxes generated from all sources, including roads, is available for the government to use as it sees fit. Certainly, if road taxes fell to the levels demanded by road interests, other taxes would have to rise to compensate. This situation can be seen in Europe where some indirect taxes like that on fuel are lower than the UK, but direct taxes such as income tax are higher than the UK. The oft quoted figure of £32 billion also includes VAT. No other industry demands that its VAT be directly reinvested in itself.

  2.3  However, RDS would like to see more positive moves to use the money generated by fuel tax to fund rail freight, public transport alternatives and better facilities for walking and cycling. It is clear that good quality alternatives must be in place, or on the way toward being in place, before modal shift will realistically occur.

  2.4  Secondly, there is a lot more to the cost of roads than simply construction and maintenance. Deaths, injuries, pollution, congestion and land use to name but a few, all have a price tag. For example, the DETR allows a figure of £2 million per life saved to justify road improvements. By using this figure multiplied by the 3,500 fatalities per annum on our roads we have a cost of £7 billion for direct deaths alone.

  2.5  Road haulage shelters behind the gross figure of road taxation when it deploys its arguments. Most road taxes are paid by private cars. Most damage to roads is caused by heavy lorries. The recent go-ahead given to the introduction of 44-tonne lorries on our roads, other than to and from rail freight terminals, will compound this problem.

  2.6  It is accepted, even by government, that heavy lorries only pay some 70 per cent of their direct costs. When indirect costs are added, the figure escalates even further. The Road Haulage Association accepts that HGVs can cause up to £28,000 of damage each year but generate just £25,000 in fuel tax and vehicle excise duty (The Independent, 23 September 2000). This figure does not include the costs of congestion, climate change and accidents. Lorries account for 7 per cent of road traffic but are responsible for 20 per cent of road casualties (DETR, 1999).

  2.7  Far from being overtaxed, it is widely recognised that roads underpay their cost to society by some £30 billion per annum.


  3.1  The Road Haulage Association is promoting the idea of an "Essential User Rebate" (EUR) to give a rebate of 30p per litre to "essential users". Not surprisingly, they have defined essential users as themselves alone! For example, it would appear that taxis with disabled access and similar vehicles are not "essential".

  3.2  The RHA idea that all road haulage is "essential" is questioned by this Society. Much road haulage, especially in the bulk sectors, is in direct competition with rail, pipelines and coastal shipping. This is a very price sensitive area and a blanket reduction of 30p per litre as demanded by the RHA, under threat of further civil disobedience, would result in massive transfers to road from these other, more environmentally friendly modes.


  4.1  The road industry is fond of making comparisons with Europe but again does not compare like with like.

  4.2  Many European countries have toll motorways. Those that have free motorways almost always have a vignette system to make foreign lorries contribute to their upkeep. (A vignette is a form of licence purchased at the border by non-domestic lorries permitting use of motorways or toll roads for a given period. See below.)

  4.3  Many European countries have restrictions on the use of lorries at weekends and bank holidays. Mandatory lorry routes are also enforced as opposed to the "go anywhere" policy in the UK.

  4.4  Enforcement of regulations is often more rigorous in Europe. For example, the rate of spot checks for defects on lorries in Germany is nearly treble that in the UK. In France, on the spot fines are levied for speeding.

  4.5  Support for rail and inland waterway transport is much more evident across most of Europe. Between 1982 and 1995, Britain spent half the European average (as a proportion of GDP) on rail infrastructure investment. This enables those modes to maintain a more healthy market share than Britain. Rail's share of the UK passenger market in 1997 was less than 5 per cent compared with nearer 7 per cent in Europe. (Source: EMCT. The European average is based on comparisons with Germany, France, Italy and Spain).

  4.6  The sum total of these, and other measures, is that in most European countries it is more expensive to operate a lorry than in the UK. Several UK operators have attempted to "flag out" lorries to foreign countries but have discovered that, when all other costs are taken into account, it is more expensive to register a lorry on the continent than in this country. The net result is that very few lorries indeed have been "flagged out" and most of those have returned to UK registration. The FTA itself has commented that "flagging out" is "not a productive avenue to follow".


  5.1  As stated earlier, any taxation not raised from road sources would have to be replaced or public expenditure in other areas would have to be drastically cut back. Either way, the average man in the street would still have to pay whether by increased income tax, VAT, increased prices as company taxation is passed on to the consumer, or by reduced public services.

  5.2  A reduction in road taxation would encourage more use of roads. Some, like the Freight Transport Association, may argue that the high duty on fuel has not had an effect on car use and pollution. It is true that distance travelled per person by car has not fallen since the fuel duty escalator was introduced. But even the AA agrees that were it not for this fuel tax, car use would have grown at an even faster rate. Furthermore, as a result of the British public's awareness of the need for fuel efficient cars, to save money on fuel, cars purchased in this country are on average one third more fuel efficient than those in the USA. So, if fuel tax is lowered, congestion and pollution would rise and the demand for more roads would increase. All this would be covered by a reduced income source.

  5.3  Already the wider effects of road traffic are significant, and if it is to increase dramatically these effects will also increase. According to the Royal Commission on Environmental Pollution, in 1994 transport accounted for 24 per cent of UK carbon dioxide emissions and road traffic accounted for 87 per cent of transport-based carbon dioxide emissions. The effects of motorised road traffic on air quality and human health are significant. The Committee on the Medical Effect of Air Pollutants states that air pollution causes between 12,000 and 24,000 premature deaths each year. Research by the Environmental Transport Association reveals that the health impacts of traffic pollution cost £11.1 billion each year. Furthermore, carbon dioxide emissions from vehicles in Europe are set to rise by 30 per cent by 2010 (European Environment Agency).

  5.4  As described earlier under EUR, cheaper fuel would enable lorries to undercut rail/water/pipeline transport and undermine attempts to diversify into other modes. Even in bulk traffics the balance between road and rail is very fine and the government is already committed to allowing 44 tonne lorries from 1 February 2001. This in itself is estimated by EWS, the major rail freight operator, as being capable of abstracting 20 per cent of their business. The last budget saw the abolition of the fuel escalator and massive cuts in the cost of excise licences for heavy lorries. These measures have also assisted road haulage to abstract traffic from rail.

  5.5  The DETR has estimated that the removal of all fuel taxes would reduce end product costs by only 1.25 per cent. Such a course of action would, of course, not only be a huge loss to public finance, but would also close down all alternative forms of freight transport in this country, including coastal shipping, which incidentally carries 20 per cent of the country's goods compared to 65 per cent by road, leading to widespread congestion and increased pollution.


  6.1  Much of the difference in price between fuel in the UK and most of Europe can be explained by the increased value of Sterling in recent years. Calculations can demonstrate that if the value of Sterling compared to the French Franc was the same now as it was in 1995 the cost of fuel in both countries would today be almost the same. The high value of Sterling is affecting all industry in this country. It would be grossly unfair if one industry, road haulage, was singled out for preferential treatment and its costs reduced at the expense of the country as a whole, while other industries struggle on or go bankrupt.


  7.1  Hauliers complain that foreign competitors are able to enter the UK with a fuel tank of European diesel in a lorry that is cheaper to tax etc and undercut them. We have already stated, and the FTA agree, that it is no cheaper to register a lorry on the continent. Therefore, the issue revolves around the tank full of cheaper continental diesel.

  7.2  About 10 years ago diesel cost more in France than in the UK. At that time hauliers attempted to take extra supplies with them from this country. Notwithstanding European law, the French authorities simply did not allow this to happen. Lorries were stopped at the ports of entry and made to discharge excessive fuel. One could say this was a French interpretation of EU law but it certainly worked. However we would not advocate such action in the UK.

  7.3  Most diesel brought from the continent is of an inferior quality to UK sourced supplies. The use of ultra low sulphur diesel is now universal in this country whilst continental supplies still have a high potential to pollute. Sulphur dioxide (SO2) emissions are a major contributor to acid rain, and also contribute to poor air quality in and around urban areas, which can be harmful to human health (DETR, 2000) It could be argued that the UK government should restrict such imports on health grounds, which provide an exemption to EU free trade principles. Again, we would not advocate such action in the UK.

  7.4  The price of fuel in this country is one part of a national strategy on behalf of successive governments of different persuasions to tackle the problems of pollution and congestion. The unwillingness of our European neighbours to face the issues involved should not be taken as a signal that we should abandon our efforts. A simple mechanism exists to level the playing field so that continental lorries cannot unfairly undercut UK operators. It is a method widely used in Europe and one that UK operators abroad have to pay. It has been referred to above. It is the Vignette.

  7.5  A vignette has to be purchased at the border by a foreign lorry entering, for example, Germany. This authorises the lorry to use German motorways which, unlike those in France and Italy, are not subject to tolls. This enables the German government to obtain additional revenue to assist in the maintenance of those roads from lorries that are cheaply taxed in countries that obtain the equivalent revenue from toll receipts.

  7.6  In order to comply with European law, a country cannot discriminate between domestic and foreign lorries. All vehicles, even domestic ones, must purchase a vignette. At first glance this would appear to defeat the object but quite simply, the cost of a domestic excise licence is reduced by exactly the same amount as the cost of a vignette. The cost to a domestic lorry remains the same but foreign lorries would have to make a new contribution which will partially level the playing field. The levelling is only partial because the EU places limits on the maximum that can be charged for a vignette. Nevertheless, the contribution is valuable and avoids a blanket reduction in fuel taxation which would have all the adverse effects mentioned above.

  7.7  In its recent report, "The Road Haulage Industry" (page xxiii, para 54), the Environmental, Transport and Regional Affairs Committee recommends the adoption of a vignette system in the UK as outlined above. The committee has pointed out that European law restricts the ability of the UK government to apply realistic charges for a vignette, but nevertheless they urge the government to push for changes in the relevant European legislation rather than simply accept the status quo. International road hauliers based in the UK certainly complain vociferously about the injustice of having to pay tolls or vignettes in Europe while foreign lorries enter the UK for free. If nothing else, a UK vignette would give the appearance that the government is attempting to "level the playing field".

  7.8  In a recent report on European best practice to the DETR, the Commission for Integrated Transport states that, as a traffic management tool, Germany is looking at charging for HGV traffic. As Germany already has a vignette system in place covering UK lorries, it would be interesting to see just what form the new charge will take and whether it could be applicable to foreign lorries entering the UK.

  7.9  Before reductions in tax are contemplated, we recommend that the vignette system be introduced and its effect assessed, and a study of the new German proposals made with a view to their application to the UK.

October 2000

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