Annex
Professor McKinnon's criticism of LRUC
and his proposed alternative
An increasingly outspoken critic of LRUC is
Professor Alan McKinnon, Director of the Logistics Research Centre
in the School of Management and Languages at Heriot-Watt University,
Edinburgh, who argues that lorry road-user charging in the way
envisaged by the Government should wait until wider road pricing
is in place.
MCKINNON'S
CRITICISM OF
OUR PLANS
FOR LRUC
Professor McKinnon argues that the proposed
system is hugely complex and expensive (around £4 billion
over the next decade), and that this expenditure is only justified
if it is to be used for congestion charging (otherwise there will
be a hugely expensive and complex tolling system with apparently
only a small part of its full functionality actually being used—to
permit uniform distance-based taxation for British and foreign
vehicles). But the imposition of congestion charging exclusively
for lorries would discriminate unfairly against the most economically
important category of traffic and would prove a relatively ineffective
means of relieving traffic congestion.
This criticism can be summarised to three points:
1. Our proposed LRUC system is expensive;
2. Our proposed LRUC system can only
be justified if it is to be used as a lorry-only congestion charging
scheme; and
3. Lorry-only congestion charging is
unfair.
SUBSIDIARY POINTS
WHERE MCKINNON
HAS MISUNDERSTOOD
THE LRUC PROPOSALS
Professor McKinnon also made a number of specific
points based on the misunderstandings of the proposals:
(Page 4 of his report dated July 2005)—It
will employ satellite tracking and communication technology to
determine how far vehicles travel on different types of road at
different times of day
We have never said explicitly what the technical
solution for LRUC would be. Progress Reports have stated Ministers'
views that the market should decide the optimum solution, which
may well involve GPS. We need a certain level of sophistication
as paper-based or very simple approaches involve unacceptable
fraud risks and high compliance costs, but we are not being prescriptive.
If the market comes forward with other approaches that deliver
all the objectives, with robust delivery plans and good management
of risks, high levels of assurance, acceptable compliance etc,
and offer all round value for money, we would want to go for the
best solution.
(Page 4)—This goes well beyond what is required
to establish tax parity between British and foreign hauliers
We have never said that a level playing field
with foreign hauliers was the only policy objective of LRUC. The
recent Transport White Paper set out the Government's long-term
objectives for road pricing. In addition, LRUC progress reports
have all been titled "Modernising the Taxation of the Haulage
Industry—Lorry Road User Charge".
(Page 7)—Poor reliability of the GPS equipment
was one of the main reasons for the recent failure of the German
Maut System
We do not know whether or not GPS will be used
in our system—the market is best placed to decide that.
The reason for the German system failure is difficult to contribute
to a single cause, but inadequate integration testing of the various
components of the system and poor project management may have
contributed—the GPS element itself did not fail. The Swiss
solution, which has worked well, also involves GPS—GPS is
hardly new technology.
(Page 7)—One of the ironies of the current
LRUC proposal is that the vast majority of foreign trucks operating
in the UK fall into the "low use" category as they travel
less than a threshold distance of 12,000 kms annually on British
roads
No decision has yet been taken on a threshold.
This could be distance or time based. We are not necessarily specifying
a system that would have a separate scheme for infrequent users—we
merely need to ensure that the requirements to comply with LRUC
are not disproportionate for people who will be paying very small
amounts of the Charge. If there is a low user scheme, and if the
threshold is set at 12,000 km, then it is likely to be cumulative,
so a large number of foreign lorries will pass the threshold within
a few years.
(Page 7)—More experience will have been
gained from the application of tolling technology in other countries,
particularly Germany whose system most closely resembles that
proposed for the UK
The projected starting date for LRUC will allow
time for assessment of the German scheme, which is set to start
in January 2005.
PROFESSOR MCKINNON'S
SIMPLER ALTERNATIVE
TO LRUC
As an alternative, Professor McKinnon proposes
a simpler model for LRUC, without technological tracking systems
or time-of-day congestion charging. This system consists of:
— Annual MOT inspection notes the lorry's
tachograph reading.
— Drivers would take manual tachograph
readings at points of entry into, and exit from, the UK (subject
to penalties for mis-recording).
— Distance driven outside the UK would
be aggregated from these readings and deducted from annual mileage
reported at the annual MOT.
— Total mileage in the UK during the
year is used to calculate a toll by using factors such as vehicle
type, weight class, axle numbers, Euro emissions standard and
"any other environmental factors that the Government considered
appropriate".
— VED would be reduced to EU minimum
so that all tax is based on fuel consumption and/or mileage.
— Fuel duty would be rebated based
on distance travelled in the UK in the year, and benchmark fuel
efficiency figures for different lorry types.
— The same system would apply for foreign
vehicles (signed declarations of tachograph readings on entry
into, and exit from, the UK and fuel rebates based on mileage
and benchmark fuel efficiency), but tolls would be calculated
using vehicle type data held in a smart card issued at registration
on first entry into the UK, and drivers would be required to pay
the toll on leaving the country rather than annually at the MOT.
| Headline message of McKinnon proposal
| Summary critique |
| System purports to be manual, simple to operate, and consistent for all hauliers.
| It treats foreign hauliers in a fundamentally different way (demanding payment on leaving the country, registration and issuing of a card), and will require a much greater presence at the ports "targeting" non-UK hauliers, contrary to EU legislation.
It might work in Switzerland, but they are not in the EU. Since the completion of the Single Market, member states are not permitted to create fiscal controls at internal frontiers and McKinnon's proposals seem very likely to conflict with EU law.
Complex technology should not be seen as a problem (why shouldn't we be confident enough to develop it)—it will be far more efficient, easier for the charge payers, accurate and fool-proof than the McKinnon proposals (which actually impose quite a lot of extra manual record keeping at a time when business is increasingly adopting electronic processes).
|
| All HGVs would have the Tachograph distance recorded at the annual MoT inspection for purpose of levying a km-based toll.
| Significant risk of fraud:
— Any tachograph fraud would be automatically translated into LRUC fraud.
— Either the MoT inspector or the haulier could transmit the data as long as at some stage the haulier made a declaration that the data provided was correct. However, this is wide open to collusion.
Adverse cash flow implications of annual billing:
— While it could be mitigated with quarterly (re) payments on account based on the previous years' payment (much as payment on account works in VAT now), annual tax returns could result in lengthy periods before a haulier receives the repayment is due;
— Annual billing would give no opportunity to smooth the revenue flow;
— Experience of other annual return arrangements (eg annual tax return) has shown that there is a disproportionate financial and time burden required;
— Also, the audit trail can be more complex than for shorter time period declarations.
If the vehicle changes hands between annual inspections, mechanisms would need to be put in place for interim readings certified by both parties. This would be at best clumsy in cases such as short-term hire where the operator of a vehicle changes frequently.
If the rate changes during the year, this would have to be supplemented by manual readings taken at the time of the rate change (with inherent risk of fraud and additional compliance burden for hauliers).
Solution can only work with one rate for all roads and therefore fails to address the problem of incentives for lorries to use shorter non-motorway routes.
|
Distance travelled outside UK would be captured by the driver taking a Tachograph reading when they exit and enter the UK.
| The whole scheme depends on self declarations—expecting drivers to accurately record their mileage every time they leave or arrive in the country is unrealistic and who would be liable for errors.
No semi-manual system can cope perfectly with a land border, and the problems are exacerbated in "local" environments such as Northern Ireland where any individual vehicle crosses the border frequently.
A system similar to this does work in Switzerland but this relies on tight border controls coupled with a compulsory "main scheme" box for Swiss nationals to reduce the incidence of declarations at the border. In addition the nature of foreign haulier travel in Switzerland is different to that experienced in the UK. Foreign hauliers in Switzerland are mainly through traffic, this is not so for the UK.
A scheme of this description could not be operated in the Northern Ireland land boundary where no routine Customs presence currently exists. In reality therefore, routine assurance could only be met by Customs examination of commercial records to verify declarations after journeys have taken place.
Such a system could be costly to administer and would no doubt suffer from higher levels of fraud than an automated system would. Examination of commercial records of overseas taxpayers would also prove to be problematical.
|
Distance travelled outside the UK would be aggregated and deducted from total mileage.
| It will be difficult to record and report this data when the total tachograph reading is only taken annually. We assume that McKinnon envisages that HMCE would retain this declaration of mileage is received. The overseas mileage (based on the declarations) would then be aggregated and deducted from the total mileage. However, the possibility of fraud arising from mis-declarations on non-UK distance travelled could be an issue here.
|
Toll is calculated by applying mileage in the UK to fixed vehicle-related factors.
| Cannot cope with journey related differentials, such as the presence of a drawbar trailer, which is necessary if we are to avoid discrimination.
|
Foreign-registered lorries would be assigned a "smart registration card" and the driver would make a declaration of the Tachograph reading on entry and would pay the resultant toll at the exit point from the UK.
| Same problems as for 2a, b and c. In addition, the requirement for a card seems unnecessary, provided the registration data are recorded centrally, why does the haulier need a card?
Payment of a toll at exit points to the UK could create a fiscal barrier. This also implies that the driver, rather than the operator, is liable for the charge, which we have already discounted as unworkable and unfair.
|
Compliance would be ensured by "random checks and heavy penalties for misreporting".
| Presumably, McKinnon is assuming that these "random checks" would be compared against the annual declarations made by hauliers. The very fact that they are annual could make this difficult to reconcile, and it would be almost impossible to establish that there had been no attempt to uplift the overseas distance declared.
|
Benchmark fuel efficiency figures would be used to calculate the rebate for different vehicle categories.
| The assumption is that UK hauliers would be repaid monies based upon a calculation of distance travelled and benchmark fuel efficiencies. This would only work if an assumption were made that UK hauliers would not have access to non-UK fuel. This would not be so for any haulier that visited abroad. Some system of fuel purchased declaration would have to be operated. We would also need to build a system for assurance that the fuel was purchased in the UK; in reality this would mean that all hauliers would need to keep a record (and make a declaration of) fuel purchased in the UK. If such a system was purely manual, potential fraud figures could be extremely high.
In addition, the scheme as proposed for UK hauliers would leave some makes of vehicles as repayment vehicles (because of the nature of the vehicle) and other payment vehicles. This could increase any potential for fraud (increasing estimated mileage for repayment vehicles and decreasing for payment) that might be expected in this proposed scheme.
Fuel consumption is notoriously difficult to measure, since it can vary by road and weather conditions, as well as by HGV type. For example, the same distance travelled in a built up urban environment will require a different amount of fuel from that required in a rural area. We could only narrow the wide ranges of tolerance levels by having a better idea of what HGVs travel in what road conditions, which is impossible, leaving us open to Public Accounts Committee (PAC) criticism that we are allowing too great a flexibility in the amount of money given to hauliers. If we imposed a benchmark with no range, we would have to differentiate by HGV type. A greater degree of disaggregation would be more difficult to administer, but simplifying it would create winners and losers around each benchmark, leading to possible fuel inefficient driving or fraudulent activity.
These benchmarks would need to be determined by Customs and Excise for every make and model of lorry that drives in the UK. This would be a difficult exercise and would entail second guessing manufacturers' claims about fuel efficiency. If this exercise is not done fairly and comprehensively, the outcome is that some models will benefit from a higher level of fuel duty repayment than they merit. There could be a whole industry set up to challenge the decisions taken by Customs and Excise staff about the real fuel efficiency of vehicles.
If the fuel duty rebate changes mid year, it would require manual tachograph readings at the time of the rate change (with the same problems as for change in the charge rate).
|
Fuel rebate is calculated according to mileage in the UK rather than litres of fuel purchased in the UK.
| Some sort of system is required to ensure that the fuel duty repayment is linked to fuel bought in the UK. This can only work if hauliers send in their purchase receipts, they have to send in the receipts annually (to accompany the calculation of the toll, it is a lot of paper for the haulier to keep safe for up to 12 months). This would require a substantial paper processing centre in Customs and Excise and significant compliance costs for hauliers who would have to retain transaction level details to support a detailed tax return on an annual basis.
Effectively, it amounts to a reduced rate of the toll for people who buy fuel in the UK. How much fuel does one need to buy in the UK to be eligible for the reduced toll rate? If it is "any amount" then foreigners could buy their token few litres of fuel and then claim the "rebate" for all fuel they consume. If it is "at least as much as the amount consumed in the UK based on average fuel consumption" then that is surely discriminatory.
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Infrastructure mainly involving tolling stations at ports.
| It is a concern that we may not be safe from challenge if there is any "unreasonable" delay for a haulier at the frontiers. The existing concerns over the issue of negotiating with port authorities over any infrastructure required would be exacerbated the more we rely on port infrastructure for a solution.
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