Examination of Witnesses (Questions 40-59)
MR RICHARD
TURNER, MR
ROGER KING
AND PROFESSOR
ALAN MCKINNON
12 JANUARY 2005
Q40 Chairman: Very briefly.
You were kind enough to give us a very detailed explanation, but
perhaps you could encapsulate it.
Professor McKinnon: I will do
my best. Trucks have an annual MOT test, and when they go in for
that test you would record from the tachograph the distance the
vehicle had travelled in the previous year. The Government would
have worked out a per kilometre toll rate for vehicles based on
the weight, the type of vehicle, the emission standard, and you
would multiply distance travelled by the per kilometre toll rate
to work out what the total tax burden of that vehicle should be.
You then look at how much fuel duty that vehicle has paid over
the year, and at the end of the year you will have a simple reconciliation.
So if a vehicle is very fuel efficient, the haulier might actually
get some money back. If it is less fuel efficient, he would have
to pay something. One of the key elements of our system is that
the rebating of fuel duty against the per kilometre toll would
be done with respect to benchmark levels of fuel efficiency, which
is done for two reasons. One is that if the Government has set
those benchmark levels of fuel efficiency correctly, they would
give hauliers an incentive to improve the fuel efficiency of their
operations. The second advantage is that it would make the system
self-enforcing, it would discourage hauliers from tampering with
the tachograph and under-reporting the distance the vehicle has
travelled. A similar system could be applied for foreign vehicles
to level the playing field.
Q41 Miss McIntosh: Will
the cost be less with that proposal?
Professor McKinnon: It will be
a fraction of the cost. There are various estimates of what the
LRUC will cost. It is difficult at the moment because we are in
the middle of the procurement process and it is only when that
is finished and a successful bidder is identified that we will
know what the LRUC will cost to operate, but I would estimate
maybe £500, £600 million. Our system at the most would
cost a few tens of millions of pounds. The other advantage of
our system is that those costs would be more than covered by the
extra revenue we would derive from foreign vehicles, whereas it
is likely the collection costs of the LRUC will substantially
exceed the additional revenue which would be generated from foreign
operators. It is worth noting that the Chancellor gave an assurance
that British hauliers will not have to pay any more, they have
been promised tax neutrality, so the only new revenue coming into
the system will be that from foreign operators.
Q42 Miss McIntosh: Does
the industry support Professor McKinnon's version?
Mr King: As I said a few moments
ago about the LRUC, it is a complicated process and technically
there are big question marks over it. We look at the German system
and we see they were not initially successful there. I think anything
which offers a simple and straightforward system is worthy of
scrutiny. The only point I would make about Professor McKinnon's
solution is, first of all, the entry point into the country for
continental operators primarily is Dover, that is where most of
the vehicles come in and go out of the UK, and long tail-backs
whilst accounts are settled could create a problem, and indeed
the EU may say that is a cross-border control which is not acceptable.
Secondly, the haulage industry hires in vehicles all the time
on short-term leases and sells vehicles on, how would you match
up the bills for one or the other and work out who is going to
pay what over a 12-month period? I am sure the leasing companies
would have something to say about ending up with a substantial
bill and precious little fuel duty rebate. On paper I think it
is an excellent idea and paper is what we have, but there is a
need to look at some of the detail, which the LRUC is seeking
to address even though in a complex way.
Q43 Miss McIntosh: I am
slightly concerned. Professor, you are saying at the moment EU
hauliers pay nothing?
Professor McKinnon: Correct.
Q44 Miss McIntosh: So
they would pay for the first time, but we are not going to get
into a situation where there will be discrimination between what
UK hauliers are being charged and what EU hauliers are being charged?
Professor McKinnon: That is correct.
Chairman: One of the recommendations
of this Committee, as you know, Professor, is that this inequality
needs to be addressed.
Q45 Miss McIntosh: Otherwise
it is illegal.
Professor McKinnon: That is correct.
At the moment, foreign hauliers fill up their tanks before they
enter the country, understandably, because fuel is much cheaper
outside the UK, and they do not pay any vehicle excise duty so
they contribute nothing to the UK exchequer, but the system we
are proposing would impose exactly the same level of toll on foreign
vehicles as on UK vehicles, and we would treat the foreign vehicles
similarly at the points of entry and exit to the UK international
hauliers, so there would be parity, and therefore I think this
would be compatible with EU requirements.
Q46 Miss McIntosh: But
the fuel duty rebate?
Professor McKinnon: If a foreign
haulier chose to buy their fuel in the UK, they would qualify
for a rebate on the fuel duty just as UK hauliers would.
Mr King: Chairman, you would need
special treatment for Northern Ireland because with 130 roads
between the North and the South it would be difficult to have
border controls to check on mileage and check on fuel duty.
Chairman: I think this country is quite
used to having different systems for Northern Ireland, Mr King.
Q47 Mr Stringer: Professor
McKinnon, what is your answer to the point which has just been
made by Mr King, that your proposals would not work because the
lorries would be in different ownership, or a percentage of the
lorries would be in different ownership, over a period of 12 months
because they would change from one company to another? When I
read your paper, I thought of a similar but different point, that
if a haulage company had more than a given number of vehicles,
they would just take it in turn to send those vehicles and they
would never get the bill at the end of the year. What is your
answer to those two points?
Professor McKinnon: There are
a number of complications we would have to address. If the ownership
of the vehicle changed during the year, then a DVLA form must
be filled in, you would simply declare what the mileage of the
vehicle was at the time of the ownership transfer, and the responsibility
for paying the tolls would also transfer at that stage. I do not
think that would be too difficult. Every vehicle would have a
registered owner who would be responsible for paying the toll,
and it would be their job to ensure that was done.
Q48 Mr Stringer: Just
on that point, that is clearly true, but you catch them after
a 12-month period, do you not?
Professor McKinnon: That is correct.
We would only be checking the tachograph at the time of the annual
vehicle inspection.
Q49 Mr Stringer: So the
owner of a lorry comes in every week for 50 weeks, sells the lorry
on and he does not pay a penny, does he?
Professor McKinnon: Presumably
a central agency, DVLA or whoever, would be keeping a central
database on the mileage that the vehicles had travelled, and if
the ownership of the vehicle was changed that would be up-dated
on the database, so at the end of the year there would be some
reconciliation. What might be more of a problem would be where
an operator was not able to say how much was spent on fuel consumed
by a particular vehicle. The larger operators currently have a
system in place which allows them to work out how much fuel each
vehicle consumes. Many hauliers are owner-drivers with a single
vehicle so they can do it. For smaller hauliers with several vehicles
who cannot separately identify how much fuel went into each tank,
initially as an interim measure they could perhaps have a fuel
rebate system at fleet level rather than individual vehicle level.
I concede there are a number of technical problems which will
have to be resolved, but I do not think any of them represent
a fatal flaw; we can find a way of addressing them.
Q50 Mr Stringer: What
did the Treasury say when you put this point to them?
Professor McKinnon: We have presented
our system to Customs & Excise, who claim they have done an
internal feasibility study, but they have also said they cannot
tell us the results of that study. They say our system will not
work but they have not said why. I wrote to them two days ago
to take advantage of the new Freedom of Information Act and asked
if I could see the internal memo and I am awaiting their response.
Q51 Mr Stringer: Will
you send us a copy of that response when you get it?
Professor McKinnon: I will happily
do that, yes.
Mr Stringer: Thank you.
Q52 Chairman: Can I ask
you about the cost of registration and enforcement of your scheme,
Professor? Have you done any estimates of that? Have you produced
any kind of model which says, "This is what ours would cost",
even though obviously you do not know what the Government scheme
would cost?
Professor McKinnon: The beauty
of our system is that it would use mainly existing systems of
revenue collection and data collection, so the main revenue stream
would still be fuel duty. We would suggest that you abolish vehicle
excise duty or at least reduce it to the minimum level required
to cover the administration costs of a registration scheme. So
the main source of revenue is fuel duty paid during the year.
The data collection would be the recording of the distance travelled
at the annual MOT test for domestic vehicles. This is slightly
more problematic for vehicles crossing international frontiers,
so the main additional expense would be setting up a system for
collecting information on tachographs at the ports. Roger was
correct in saying that a lot of vehicles coming out of the EU
go through a small number of ports, in fact we reckon about 95%
of all vehicle movements go through about seven points—the
Channel Tunnel and six Ro-Ro ports. That should not present too
many difficulties because the system we are proposing is very
similar to the system in Switzerland which has 100 border control
points and they have 12,000 vehicles crossing those points per
day and in Britain we have about 5-6,000 vehicles coming through
seven points, taking advantage of our island status, so that would
be a lot easier to implement in the UK than in Switzerland.
Q53 Chairman: I wish you
joy with your enquiries under the Freedom of Information Act.
Gentlemen, can you tell us what you understand by fiscal neutrality?
Mr Turner: In the context of fiscal
neutrality under LRUC?
Q54 Chairman: Yes.
Mr Turner: As I understand it
from ministers it means that on average what the industry will
pay in total in charges after the scheme is the same as before
the scheme. In other words, if you add up fuel duty and the charge
made after the scheme it will be the same as the total fuel duty
before the scheme. What we are reluctantly being driven to assume
at the moment is that there is no guarantee that that fiscal neutrality
will also include the cost of the equipment and the cost of administering
the equipment. If you like, our understanding at the moment certainly
extends to neutrality as far as fuel duty and charging is concerned
but it does not go any further. We would like it to go further,
obviously.
Q55 Mr Stringer: Have
the Government told you that you will be paying for the setting
up of the scheme? You must have asked the Government who will
pay for the initial set-up costs, what has been their response?
Mr Turner: The answer I have is
that we do not know how much it will cost. We hope it will not
be a cost we have to pass on to you as the user, but until we
know exactly what the cost is then we cannot give you any guarantees.
If you take that to its logical conclusion—and that is why
as an organisation we are getting a little bit nervous about this
scheme at the moment and carrying out a lot of extensive enquiries
across a wide range of interests—we are getting a little
bit nervous that we are being asked to bear the cost-risk of the
scheme because nobody knows how much it will cost and if it costs
a lot we might be asked to contribute.
Q56 Mr Stringer: Is it
helpful that the scheduled timetable for implementation looks
as though it has slipped from next year to 2008, or does that
cause you problems?
Mr Turner: I think the slipping
of the schedule is a disappointment in many respects. Whilst we
have been hearing about Alan McKinnon's innovative idea, it is
very similar in concept to one of the ideas which was polled at
the time the Treasury went out to consultation in 2001 as to what
they should be. One of them was to introduce a paper-based system
similar to the sort of schemes which currently then already existed
in Europe. The other option was to introduce a scheme which is
the route we have taken. The industry unanimously went for the
second route because we felt the first route was the old type
of approach and it was an approach which was being left by Germany,
Switzerland—I know they are not in Europe but you can almost
include them—Austria and others which are moving away from
paper-based systems. We felt, for all sorts of reasons but including
this, we should be moving towards a system which was based on
modern technology and very simple administration.
Q57 Chairman: Is that
your view, Mr King? Are there any extra points you want to make?
Mr King: The point I would make
is that in terms of fiscal neutrality, the Chancellor said the
overall level of taxation in the industry will not increase. We
are not stupid enough to think that it will not increase for some
and may benefit others. Certainly, a tipper truck in the peak
district, not doing a large mileage but going up very steep hills,
will be a beneficiary as they burn more fuel but do not drive
that far. Similarly with a parcel carrier on a motorway, the opposite
may be relevant. It is going to be an enormous challenge for the
Government to set rates that are going to get the whole industry
within this sort of neutrality area. As Mr Turner has pointed
out, the big question mark is—we cannot get any answers
to this—who is going to provide for the cost of the equipment.
If you take the German system, they provide the GPS system at
the Government's cost, about £250. The haulier pays for the
fitment of it, four hours' work, £50 an hour in the UK, but
then there is the time the truck is off the road, the loss of
wages of the driver who has brought the truck to the fitting station
and that totals up to about £750. Plus, if you add that up
over 425,000 vehicles, there is a cost issue here which we have
got to resolve with Government.
Q58 Chairman: Can I ask
you about the private nature of the investment in expressways?
How would you like to see more capacity on the network funded.
Would you like it all to be private development?
Mr Turner: Firstly, I think the
use of private funds is more expensive. There is plenty of evidence
to suggest that private money costs about a third more than using
public money. If we going to use private money, there must be
an extra benefit and the extra benefit must be that we get it
quicker.
Q59 Chairman: Your members
would be quite happy to see the charges passed on to them, as
long as there is a time advantage?
Mr Turner: Yes.
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