House of Commons - Transport

Select Committee on Transport Seventh Report

7 The Lorry Road User Charge

106. The Lorry Road User Charge (LRUC) would be a new way for heavy goods vehicles to pay for road use, by replacing fuel duty with a distance-based charge. It is being taken forward by HM Customs and Excise in co-operation with the Department for Transport, and after some delay, the contracts for the necessary technology are expected to be signed at the end of this year, with the charge introduced in 2007/8.[196]

107. The Lorry Road User Charge has been designed to ensure that foreign hauliers pay towards the costs they impose in the UK. There is an economic disadvantage to UK hauliers who pay Vehicle Excise Duty and fuel duty for use of the UK's roads, compared to overseas hauliers, who fill their fuel tanks before arriving, and pay no tax to the UK Treasury for their use of the UK's road network. The intention is to have a relatively sophisticated method of charging, based on distance travelled, and taking into account details of the vehicle, including emissions category, maximum permitted vehicle weight, whether or not a trailer is being pulled, and the number of axles. The Lorry Road User Charge would also separate taxation of lorries from other vehicles. The procurement prospectus asks for a technological solution that will allow the charge to be varied by time of day and according to road type.[197] Initially this is planned for two types of road and two time periods. However, the potential to increase the complexity of the Charge, resulting in a finely-tuned system, is apparent.

108. The HM Customs and Excise's document "Modernising the taxation of the haulage industry: Progress report one" cited additional environmental and safety objectives of the Lorry Road User Charge. It stated that an objective of LRUC was to have a

198

Precisely how the Lorry Road User Charge would improve safety has not been indicated. The Economic Secretary to the Treasury, John Healey MP, has stated that the Government is considering charging a different rate on motorways "to reflect the different costs imposed."[199] It is not clear whether the charge will be higher or lower on motorways. Nor is it clear whether the Government will seek to encourage further growth of night time operations.[200] It will be vital to ensure that the tariffs do not encourage diversion of heavy vehicles onto unsuitable roads or at undesirable times of day when noise could be a problem.

109. The principles behind the Lorry Road User Charge programme have general support from the road haulage industry, although the details of the scheme are the subject of some contention.[201] Road freight associations have supported the Lorry Road User Charge not only because it promotes a fairer system, but also because it provides the possibility, although not a commitment, to vary tax rates for haulage industry vehicles at a different rate to private vehicles.[202] As the Road Haulage Association noted:

203

The desirability, and likelihood, of tax reductions for the haulage sector is unclear. A tax break for hauliers would appear incompatible with the stated wider objectives of the Lorry Road User Charge: to have a positive impact on climate change, air quality and noise.

110. A point of contention is whether the Lorry Road User Charge should be used to tackle congestion. The first Lorry Road User Charge Progress Report indicated that an objective would be congestion reduction, and the fact that the procurement prospectus calls for a system which could eventually be varied by a large number of road types and time periods, suggests the scheme could be tailored to target congestion.[204] The haulage industry and logistics experts have challenged the value of introducing a congestion charge for the 430,000 lorries in the UK while 28,000,000 private cars are unaffected.[205] Their assertion is that the impact on congestion would be minimal and that congestion charging for lorries should be delayed until charges are targeted at cars too. They point to the fact that lorries will only account for 4 per cent of traffic growth between 2000 and 2010, (even with the advised 2.5 'Passenger Car Units' weighting).[206]

How sophisticated should the system be?

111. If the Lorry Road User Charge is designed as a simple distance-based charge, and does not take account of congestion and other factors, there may be no need for a very sophisticated technological solution. Professor Alan McKinnon, of Heriot Watt University, has been a leading critic of the complexity of the Lorry Road User Charge programme.[207] Alan McKinnon has argued that it would be imprudent to introduce a sophisticated and expensive satellite technology system for lorries in 2008, several years ahead of the earliest anticipated start date for a national road user charge for all vehicles in 2014. Procuring a system now that would be able to co-ordinate with a presumably much more technologically advanced system in 10 years time is fraught with risks. A high price could be paid for operating such a system over years when only a small part of its full functionality will actually be used.

112. There will be significant costs associated with the introduction of the Lorry Road User Charge. HM Customs and Excise was unable to give us an estimate of the set up and operating costs of the scheme because the procurement process was underway.[208] However, research puts the estimated annual cost of the Lorry Road User Charge, and associated fuel duty rebate system, in the realm of £400 - 700 million.[209] The additional revenue from the Lorry Road User Charge is unlikely to cover the operating costs and the freight industry and logistics experts have concerns that the scheme will not represent value for money.[210] In addition, the difficulties and cost of enforcement could also be significant. The Road Haulage Association drew attention to the problems faced in enforcing the Lorry Road User Charge in Northern Ireland, where there are 300 open crossing points between the UK and the Republic of Ireland.[211]

113. Alan McKinnon and David McClelland have devised an alternative Lorry Road User Charge system based on annual tachograph readings, which they claim would meet most of the main objectives at much lower cost, risk and disruption.[212] The Government has responded to their criticisms and rejected the proposals for a simpler charge.[213] Alan McKinnon has rebutted these criticisms.[214] We do not judge the feasibility of their alternative system in this report, however, the critique of the Government's proposals raises serious concerns about cost effectiveness and the appropriateness of the solution being sought. HM Customs and Excise appear to be discounting the simpler system, and backing an as yet unspecified technological solution. The Economic Secretary to the Treasury told us that a Regulatory Impact Assessment would not be carried out for the Lorry Road User Charge until the technological solution had been decided and substantive legislation was produced.[215] There is a serious risk that millions of pounds of tax payer's money could be unnecessarily wasted. When the procurement process has identified a potential technological solution, the Government should undertake objective comparisons of the different solutions including Alan McKinnon and David McClelland's alternative system, using a standard set of criteria such as cost effectiveness, risk of fraud, burden on industry, and technical robustness.

114. The Government has advised that the Lorry Road User Charge will be introduced on a revenue neutral basis, and will not increase the tax burden on the industry. But it is not clear who will cover the costs of setting up and operating the scheme. Both the Department for Transport and HM Customs and Excise told us that no decision would be made on how the costs would be met until the final cost of the programme is known.[216] The haulage industry is concerned that it will be expected to cover the costs.[217] The on-board units for similar systems in Switzerland and Germany were provided free of charge, but installation costs were borne by the vehicle owner. The installation costs alone could be quite high, as Roger King from the Road Haulage Association told us:

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115. It has been suggested that the Lorry Road User Charge could be a helpful pathfinder to a national road pricing scheme, providing important insights into the procurement, technological, and operational issues that would arise.[219] HM Customs and Excise told us that the Lorry Road User Charge is "not a trial run for road pricing", because the objectives differ.[220] If the Government is willing to pursue a more expensive solution for the Lorry Road User Charge because it would provide information on national road pricing, it should say so, and include this in the objectives of the scheme. HM Customs and Excise stressed that the Lorry Road User Charge contracts will include contractual flexibilities to ensure that, if national road pricing is introduced within the lifespan of LRUC, the programme will be able to adapt.[221] As the precise nature of a future road pricing system is not yet known, there are real difficulties in including compatibility with this in the specifications of the Lorry Road User Charge.[222] In addition, the Lorry Road User Charge could be affected by a Europe-wide charging regime being developed by the European Parliament.[223] These developments at the European level could hold consequences for scheme design and technology adopted in the UK scheme.

116. While we support the objectives of the Lorry Road User Charge, we have concerns over the type of system being pursued. The cost effectiveness of the scheme will not be known until the technological solution is determined. Ultimately the sums may not stack up. The Government should be wary of committing itself to implementation of a potentially very expensive and overly-sophisticated system. Ideally the Lorry Road User Charge contracts the Government signs at the end of this year should take into account the possibility of a national road pricing system and the need for flexibility to meet changing policy objectives. We will monitor closely the progress of procurement, cost benefit analysis, pilot operation, and implementation of the Lorry Road User Charge.

196 Q167 Back

197 HM Customs and Excise (May 2004) The Lorry Road User Charge Programme Procurement Prospectus Back

198 HM Treasury, HM Customs and Excise, Department for Transport (May 2003) Modernising the taxation of the haulage industry - lorry road-user charge Progress report two, page 1. Back

199 HM Treasury, HM Customs and Excise, Department for Transport (May 2003) Modernising the taxation of the haulage industry - lorry road-user charge Progress report two, Foreword. Back

200 Q25 - The proportion of lorry kilometres which are run between 8 p.m. and 6 a.m. has increased from 8.5 per cent 20 years ago, to about 20 per cent today. Back

201 RP 11A Back

202 RP 11A, RP 14A Back

203 RP 14A Back

204 HM Customs and Excise (May 2004) The Lorry Road User Charge Programme Procurement Prospectus Back

205 RP 11A, RP 14A, RP 34. Back

206 RP 34 Back

207 RP 34 Back