Memorandum submitted by the Department
of Trade and Industry and H M Treasury
This Memorandum responds to requests for additional
information following the Hearing on 14 February at which DTI
and Treasury Ministers gave evidence.
The Chairman requested the full figures for the
percentage of total costs accounted for by fuel spend across different
sectors of industry (Q426).
These are attached in a table at Annex A.
Mr Berry asked for the percentages to be expressed
in terms of pounds.
Annex A includes our estimate that direct spend
on road fuels by industrial sectors and by road haulage operators
from whom they buy in services amounts to just over £4 billion
a year in manufacturing and just over £20 billion by industry
as a whole. Estimates by sector are also included in the table,
but the footnote makes clear that these are to be treated with
The Financial Secretary referred to the £100mn
ring-fenced fund proposed in the Pre-Budget Report to assist the
haulage industry (Q439). It would be useful to know how much of
that money has been allocated and to what.
In the Pre-Budget Report, the Government announced
its intention to set up a £100 million ring-fenced fund to
offer incentives or allowances for scrapping older, more-polluting
lorries or encouraging cleaner lorries and technology, to secure
environmental benefits and help the haulage industry modernise.
The final allocations of money are subject to the ongoing consultation
with industry, and the results of this consultation will be announced
in Budget 2001.
Mrs Perham requested further information on the
work that has been carried out on the environmental impact of
the fuel escalator, and on the measurements used to judge the
The relationship between road fuel use and price
of fuel, the price elasticity of road fuel demand, has been examined
extensively within the context of energy modelling. There is a
general consensus that an increase in the price of road fuel will
result in reduced demand for fuel, and hence a reduction in carbon
emissions. The estimated size of the reduction in demand resulting
from a specific increase in price depends on a number of factors.
Different modelling approaches using different data are likely
to produce different values for the extent of this impact.
The Treasury has drawn on a number of economic
models developed within the DETR and DTI to assess the long-term
impact of the fuel duty escalator on the level of carbon emissions.
The two main models used by the DETR are the National Road Traffic
Forecasting model (NRTF) and the Vehicle Market Model (VMM). These
two models interact and allow estimates to be made of the impact
of fuel price changes on the vehicle fleet and of the overall
impact of the fuel duty escalator on traffic levels and emissions.
The DTI have independent modelling facilities
which enable the relationship between fuel price raises and potential
reductions in demand levels (and hence in CO2 emissions) to be
examined and estimated. Such analysis also forms part of the extensive
energy modelling exercises carried out by the DTI. The different
approaches provided by the different models provided different
estimates of the impact on the level of carbon emissions in 2010
saved by the fuel duty escalator. The range of 1-2.5MtC quoted
in the Pre-Budget Report reflects the range of the estimates provided
by these approaches.
Estimates of the fuel price elasticity used
in the DTI model, and also applied in the DETR (NRTF/VMM) models,
were published by the DTI in Energy Paper 65.
They are closed to the mean and mode of estimates found in a wide
range of academic literature.
The estimates include the effect of a range of changes (eg. selecting
a more fuel efficient vehicle, change in driving style, increased
use of public transport), and these may continue beyond the period
of application of the escalator.
Assumptions of future crude oil prices and the
future growth rate of the economy are also required. More recently,
in the context of work related to the Climate Change Programme,
further analysis on price influences on emissions was completed
by the DTI.
This study provided a slightly revised relationship of the carbon
impact of price changes, but the results confirm that the impact
of the fuel duty escalator remained within the range quoted earlier
in the Pre-Budget Report.
The Government continually monitors the effects
of all tax measures. The DETR has consistently sought to evaluate
the escalator's contribution to transport and enviornmental objectives,
most recently for the devlopoment of the Integrated Transport
White Paper and the consultation paper in the UK Climate Change
Programme. Fuel consumption has remained broadly stable since
1997 against a backdrop of increasing traffic and GDP (elasticity
estimates tend to show that fuel consumption is more responsive
to fuel prices than the level of traffic, ie. people find ways
to drive more fuel efficiently/buy more fuel efficient vehicles
as well as cutting back on some journeys).
The issue of prosecutions of companies for employing
drivers illegally from outside the EU as discussed (Q449). It
would be helpful to have the figures for the number of companies
that have been prosecuted.
As yet, no one has been prosecuted. This is
governed only by national legistlation and there is no applicable
EU law which covers it as yet. Non EU drivers and the companies
that employ them avoid prosecution by ensuring that they never
operate in the country in which the employer is established. For
example, it is illegal in this country for a British haulage company
to employ a driver that is not in possession of an EU HGV driving
licence. However, if the driver only uses the British lorry in
France, then it is outside UK jurisdiction. For the same reason,
the Frence cannot prosecute either.
In order to close such loopholes, the European
Commission published a proposal last November that would introduce
a drive attestation scheme. Under this proposal, it is envisaged
that non-EU drivers working for EU haulage firms would have to
carry a driver attestation certificate. This attestation would
certify that the driver had been employed in accordance with all
relevant employment legislation as applicable in the Member State
in which the haulier is established. This measure would also give
Member State the necessary legal powers to enforce this requirement
irrespective to the country of origin of the haulier.
The proposal is on the provisional agenda for
the April Transport Council and the Presidency (Sweden) have indicated
that they will aim to reach common position. The indications are
that the Council will endorse the proposal so the measure could
be in place the very near future.
It would also be helpful to have the DETR figures
comparing the UK haulage industry with other countries in terms
of productivity (Q46).
The DETR does not hold figures comparing the
productivity of the UK haulage industry against that of other
Mr Berry and Mr Laxton requested an an update
on the current situation with concerns over the price of bulk
buying diesel compared with the price at the pump, including the
OFT figures (Q464-9).
As wholesale and retail diesel prices continue
to adjust in response to spot prices and crude oil prices that
are trending downwards, data collected by the DTI show that retail
margins for diesel have generally recovered from the levels of
October and November 2000. This makes it unlikely that bulk sales
to farmers and hauliers are still being priced above retail levels.
The reverse is more likely to be generally true. Following its
inquiry, which reported in November, the OFT has continued to
monitor the wholesale and retail markets and agrees with this
judgement. The DTI has made it clear to the oil companies that
it expects cost reductions to be passed on promptly in wholesale
as well as retail markets. Retail price data are published monthly
by DTI in Energy Trends. Wholesale spot market prices are published
daily in the financial press. The OFT is not in a position to
pass on commercially confidential information from the oil companies
which they also took into account in their inquiry.
26 February 2001
31 The most recent techincal document published which
explains the DETR modelling framework and how emissions are modelled
is "Modelling using the National Road Traffic Forecasting
framework for Tackling Congestion and Pollution and Transport
2020: The 10 Year Plan. Technical Report. December 2000". Back
Energy Projections for the UK, March 1995. Back
Espey, M "Gasoline demand revisited: an international meta-analysis
of elasticities", Energy Economics 20 (1998) 273-295. Back
The latest results were published as Energy Paper 68 "UK
energy and emissions projections", November 2000. Back