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


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 care.

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 success (Q444).

  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.[31]

  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[32]. They are closed to the mean and mode of estimates found in a wide range of academic literature[33]. 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[34]. 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 countries.

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

32   Energy Projections for the UK, March 1995. Back

33   Espey, M "Gasoline demand revisited: an international meta-analysis of elasticities", Energy Economics 20 (1998) 273-295. Back

34   The latest results were published as Energy Paper 68 "UK energy and emissions projections", November 2000. 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