APPENDIX 10
Memorandum from Freight Transport Association
This document sets out Freight Transport Association's
response to the questions posed by the Environmental Audit Committee
as part of its inquiry into the Pre-Budget Report 2003. FTA has
limited its comments to those questions which have a direct relevance
to freight transport operations.
FREIGHT TRANSPORT
ASSOCIATION
Freight Transport Association represents the
freight transport interests of UK industry. Its membership includes
large blue chip multinationals, major third party logistics providers,
own account operators which carry their own goods and small hauliers.
FTA has in excess of 10,000 members which operate over half of
the 430,000 hgv fleet in the UK. In addition members consign 90%
of all rail freight in the UK and are responsible for 60% of the
nation's visible trade.
INTRODUCTION
The UK needs a forward thinking, efficient freight
transport sector to sustain its position as the fourth largest
economy in the world. Environmentally sustainable practices need
to be at the heart of commercially sound logistics strategies
often because such an approach makes business sense.
Whilst industry itself must decide how supply
chains are configured and how assets are deployed, Government
has an important part to play in promoting the right climate for
investment and modal choice and providing effective signals to
influence business planning. The 2003 Pre-Budget Report is intended
to provide the next steps in the Government's sustainable development
strategy. However, in key areas of transport policy the report
falls short of what is required or reverses previous environmental
signals, leaving industry to foot the bill. In other areas such
as the promotion of rail freight and the need to monitor and appraise
the commercial implications of diesel duty decisions, the report
is silent.
THE IMPACT
OF SPECIFIC
ENVIRONMENTAL TAX
MEASURES (OR
THEIR ABSENCE)
Road fuel taxation: a consistent approach for
all fuel types
FTA believes that the Government's Alternative
Fuels Framework fails to provide the joined up long term future
commitment to cleaner vehicles sought by the road freight transport
sector. Recent evidence suggests there has been a dramatic reduction
in emissions from heavy goods vehicles and that it is doubtful
whether gas vehicles offer any advantages from an air pollution
point of view compared with new diesel vehicles. The introduction
of Euro III and Euro IV vehicles is already giving a much cleaner
fleet and providing more certainty over performance. The Government
should therefore recognise the efforts of operators who have concentrated
on making their diesel fleets as clean as possible.
The Committee should call for incentives
for cleaner vehicles to be based on tailpipe emissions and not
to be based on the fuel being used to power the vehicle.
Road fuel gases: creating certainty over future
Government policy
Industry needs developments in policy signalled
well in advance so that it can make replacement and purchase decisions
accordingly. FTA therefore welcomes the Government's commitment
to providing future market stability for alternative fuels. With
the original commitment to road fuel gas taxation coming to an
end at Budget 2004, Government needed to provide industry with
a clear vision for gas. However, the Pre-Budget Report's three-year
rolling commitment to the duty differentials between the main
road fuels and all alternative fuels is too short. Most companies
are buying their vehicles to operate for at least five years.
A guarantee of sustained support is needed for the life of these
assets in order for them to retain a residual value.
The Committee should conclude that the Government's
Alternative Fuels Framework does not go far enough in providing
industry with the long term certainty it requires when purchasing
alternatively fuelled vehicles. A time horizon of at least five
years is needed when making a commitment to duty differentials
and support for specific fuels.
Road fuel gases: duty rates for liquefied petroleum
gas
The Alternative Fuels Framework sets out a completely
new approach to the criteria used by Government to assess the
environmental performance of alternative fuels. The emphasis has
changed from air quality criteria to carbon performance. As a
result, liquefied petroleum gas (which achieves low emissions
of oxides of nitrogen and particulates, but has poorer carbon
dioxide performance than natural gas) is deemed, under the new
assessment criteria, to have lower benefits than when its performance
was judged on air quality criteria alone.
In the 10 Year Plan the Government promised
to, "Encourage fleet managers to operate gas and electric
vehicles". Prompted by this commitment and Government incentives,
industry and consumers have invested in lpg vehicles and there
are now 100,000 such vehicles on the roads. Yet just three years
on, the 2003 Pre-Budget Report announced that the duty rates for
lpg will be gradually increased over the next three years towards
a level which the Government believes more accurately reflects
the fuel's environmental impact. This abrupt reversal in policy
took industry by surprise and is at odds with the alternative
fuels strategy's objective of giving certainty for investors and
consumers. Vehicles are bought to operate for at least five years
and operators using this fuel have been left high and dry. Operators
now face the prospect of either higher running costs for their
vehicles until these reach the end of their life, or replacing
the vehicles earlier and accepting much lower second hand prices
for vehicles which are now much less attractive.
This decision also has potential implication
for the London congestion charge. All gas vehicles are exempt
from the charge because of the environmental benefits associated
with these vehicles. Operators will have made investment decisions
to use lpg vehicles partly based on this cost saving. The reversal
of the fuel taxation policy towards lpg on environmental grounds
could signal to Transport for London that lpg vehicles should
also come within scope of the charge in the future.
Such a turnabout on lpg means there are concerns
that operators may be reluctant to move to natural gas powered
vehicles, fearing that in three years the duty on this fuel will
also rise.
The Committee should conclude that changes
in the Government's environmental performance criteria for road
fuels need to have a time horizon of at least five years. As a
result the erosion of lpg duty differentials should be extended
over a period of at least five years.
Vehicle Excise Duty for cleaner lorries: developing
an emissions-based approach for incentives
Budget 2001 introduced a new system of lorry
VED. At the same time the Chancellor announced that the Government
planned to go further in improving the environmental signals from
the VED system. The 2001 Budget Report concluded that emission
standards are a much better criteria for judging the cleanliness
of lorries than the current Reduced Pollution Scheme, and announced
that the Government therefore planned to offer reduced VED rates
for lorries meeting the new Euro IV standard from around 2004.
It promised that before then the Government would review the future
of the current Reduced Pollution Scheme in delivering further
environmental benefits. FTA is concerned that no mention was made
of the review in the Pre-Budget Report 2003 and that the Government
has yet to consult with industry on its plans.
Vehicle manufacturers have made significant
and telling advances in reducing the emissions and lowering noise
levels of diesel engined lorries. Vehicle emissions are a fifth
of the level they were in 1990 and three heavy goods vehicles
today produce the same noise as just one of 30 years ago. The
present system of VED incentives is limited to encouraging road
fuel gases and the particular use of exhaust treatment technologies
for diesel vehicles. It ignores the substantial improvements to
emission and noise levels achieved by deploying new diesel vehicles.
The Committee should conclude that the Chancellor
must now prioritise this consultation, and that any future system
of VED incentives should be based on vehicle emission levels,
irrespective of the technology and fuel used.
THE ADEQUACY
AND EFFECTIVENESS
WITH WHICH
THE IMPACTS
OF EXISTING
FISCAL INSTRUMENTS
ARE MONITORED
AND APPRAISED
Road diesel: recognising business needs in signalling
and setting duty rates
Road diesel is the single biggest cost element
for a lorry, except for the driver. Diesel represents 34% of the
total operating costs of a 40 tonne articulated vehicle and 22%
of the total costs of an 18 tonne rigid truck. In October, 70%
of the cost of diesel was fuel duty. This compares to 60% in France,
55% in the Netherlands and 51% in Belgium.
FTA welcomed the Chancellor's decision in the
March 2003 Budget to postpone a planned increase in road fuel
duty until the Autumn. At that time World oil prices were high
and volatile as coalition forces prepared for military action
against Iraq. The delay in the duty increase recognised, for the
first time, that Government had an important role to play in creating
a fuel price environment which respected the commercial sensitivity
of fuel duty, and recognised the need to give industry time to
prepare and budget for increases in costs.
In the event, World oil prices did not come
down and during December were little changed on levels in late
March 2003. The decision to leave duty rates unchanged in the
Pre-Budget Statement was therefore very disappointing and will
add £170 million to industry's annual freight transport bill.
Yet the Pre-Budget Statement contains no assessment of the competitive
implications of this increase in fuel duty, and how the overall
level of fuel duty affects the cost base of UK operators compared
to vehicle operators on the continent, who have free access to
the UK haulage market.
The Committee should conclude that the rate
of duty on diesel should not be set in isolation and must take
account of the World price of oil and duty rates in other EU member
states. Future decisions on diesel duty should be signalled well
in advance and must be supported by an appraisal of the competitive
implications of the change.
THE ADEQUACY
OF FINANCIAL
SUPPORT PROVIDED
BY THE
GOVERNMENT THROUGH
ITS ENVIRONMENTAL
FISCAL POLICY
Capital grants for the take-up of cleaner vehicles
The Government has encouraged the uptake of
gas-powered vehicles and the fitment of particulate traps to diesel
engined trucks through capitals grants administered by TransportEnergy.
Funding for TransportEnergy grants in the financial year 2003-04
ran out in November 2003. As a result, while existing grant offers
by Transport Energy will be honoured, operators wishing to purchase
vehicles that qualify for grant funding after November 2003 must
either:
— delay purchase decisions;
— fund the vehicle without grant support;
or
— fit grant funded technology at a
later date at extra cost.
The hiatus in grants as a result of funding
constraints is made all the more frustrating by the existence
of unassigned and unspent money in the Road Haulage Modernisation
Fund. This £100 million fund was set up for a three year
period starting in 2001-02 and was designed specifically to provide
assistance for the road freight transport operators to improve
the commercial and environmental performance of their businesses.
The Committee should conclude that the Government
must not constrain the uptake of clean vehicle technology by providing
inadequate levels of funding to TransportEnergy. The Department
for Transport must ensure that there will be sufficient funds
in the 2004-05 financial year to meet demand.
Encouraging the use of rail freight: reinstatement
of rail freight grants
In January 2003 the Strategic Rail Authority
(SRA) announced that it was suspending the rail freight grant
system. Since then no new grants have been available in England
and Wales. The decision to suspend grants sent a worrying message
to industry that Government no longer supports the growth of rail
freight. Freight infrastructure grants make an essential contribution
to encouraging the transition from road to rail, by swinging marginal
traffic in rail's favour.
Any mention of the crisis on the UK's railways
was absent from the Pre-Budget Report. Having suddenly turned
the tap off for rail freight grants a year ago, the long term
plans of rail freight users and operators are left in limbo. Industry
cannot be expected to put its investment plans on ice until the
Comprehensive Spending Review or the results of the SRA's review
due this summer.
FTA welcomes the introduction of the Company
Neutral Grant (expected from 1 April 2004) for intermodal rail
traffic but cannot accept further delay in the reinstating of
freight facilities grants and track access charges for bulk traffic.
The Committee should conclude that the Government
must reintroduce rail freight grants at the earliest opportunity.
January 2004
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