Memorandum submitted by the Freight Transport
Association
INTRODUCTION
Freight Transport Association represents the
freight transport interests of businesses throughout the UK. Its
members range from small and medium size enterprises to multi-national
public companies and are involved in all modes of transport. FTA
members operate over 200,000 heavy goods vehicles, about half
the UK fleet, are responsible for 90% of freight moved by rail
and 70% of goods shipped by sea and air. This unique multi modal
mandate enables FTA to speak authoritatively on all aspects of
freight based on the broader transport needs of industry in the
economy.
Q1 How have the recommendations and implications
of the Stern Review been—or should be—translated into
Treasury policy?
Freight transport should be, and is, playing
its part in meeting the UK international and domestic commitments
to reduce carbon dioxide. Since 1997 the historic link between
economic output (as measured by GDP) and road freight activity
has been broken. Whilst the economy has grown by 24% since 1997,
freight moved by road (measured in tonne kilometres) has risen
by just 2%.[17]
In addition, the in-service fuel efficiency of trucks has improved
by around 6% for rigids and by 11% for artics. At the same time
rail freight activity has increased over the period 1998-2005
by 28%.[18]
The permanent revalorisation increase in fuel
duty introduced in the Pre-Budget Report was a significant disappointment
for the freight transport industry. It will produce little benefit
in terms of carbon dioxide emissions reductions from the transport
sector but will add to cost of doing business in the UK. FTA believes
that:
The fuel duty increase announced in the 2006
Pre-Budget Report should be temporary
It is clear that the world is now in an era
of high and volatile oil prices. We believe the Chancellor's decision
to raise fuel duty is opportunistic and timed to coincide with
what is likely to be a temporary drop in oil prices during the
Autumn.
The diesel duty increase should be kept under
review. If oil prices rise again and are forecast to remain above
$60 for a sustained period, the Chancellor should reduce fuel
duty back to its level before the Pre-Budget increase to achieve
a degree of stability in pump and bulk prices.
The Committee should support the use of fuel
duty as a price regulator which removes some of the world oil
price volatility from diesel prices.
Tax revenues from the fuel duty increased
should be hypothecated into additional carbon dioxide saving measures
from transport
The justification for the fuel duty increase
was to fund public services[19]
and meet the need to maintain sound public finances. FTA believes
that such an approach squanders the delivery of meaningful carbon
dioxide reduction from the fuel duty rise. The Pre-Budget report
itself concedes that the duty rise of 1.25 pence per litre will
achieve a saving of only 0.1 million tones of carbon (MtC) per
year. On its own, the revalorisation of fuel duty represents particularly
poor value for money bearing in mind that the cost to industry
of the duty rise is likely to be £144 million per year and
the cost to all road users £328 million per year. By comparison
the Renewable Transport Fuel Obligation (RTFO) requiring transport
fuel suppliers to ensure a set percentage of sales are from a
renewable source, is expected to save 1 MtC per year by 2010.
If the full cost of biofuel at a 5% blend was borne by road users,
even at current prices (where the industry is still in its infancy
and has not built up scale economies) it would increase fuel cost
by approximately pence per litre.
To achieve a meaningful carbon dioxide reduction
benefit, the tax revenue from the 2006 Pre-Budget Statement fuel
duty increase should be directly hypothecated into carbon dioxide
abatement measures from transport either to:
(a) Encourage the uptake of low-carbon petrol
and diesel engined vehicles and new low-carbon fuels. The Stern
Review identifies the latter as a large scale change in the market
that, because of the up-front research and investment, industry
cannot provide on its own. Government therefore needs to take
a proactive role to realise their potential in reducing carbon
dioxide emissions.
(b) Encourage modal shift. Government has
a central role in influencing the choice of transport mode that
the public and industry makes. This should be achieved through
making other modes more attractive, (through influencing the service
and cost criteria used when decisions are made over the mode of
transport used) rather than simply focusing on making road transport
less attractive through raising its cost through fuel duty.
(c) Reduce congestion on heavily trafficked
arteries through capacity improvements and at bottlenecks through
bypasses. Government, through the Highways Agency and Network
Rail is the custodian of road and rail network performance. Congestion
reduction measures on the road network can reduce the carbon dioxide
footprint of journeys through tackling carbon dioxide-wasteful
traffic queues. Investment in the rail network can improve reliability
and increase the capacity of the network at busy times.
(d) Raise public and industry awareness of
transport-related actions that can be taken to reduce carbon dioxide
emissions.
The Committee should call on the Government
to review the interventions that can be made to reduce carbon
dioxide emissions and quantify these in terms of a financial cost
and carbon footprint reduction.
Increasing fuel duty is counterproductive
in reducing emissions and acts as a drag on investment in the
newest, cleanest vehicles
During the 1990s when the fuel duty escalator
regularly increased diesel duty by 5% or more above inflation,
industry responded to the pressure this put on cash flow and margins
by delaying vehicle replacement and cutting driver training aimed
at fuel efficient vehicles operations. Whilst operators were able
to reduce their costs, the benefits of new cleaner trucks were
delayed and older trucks used intensively for longer. As a result,
the age profile of the UK hgv fleet between 1994 and 1999 (when
the escalator was stopped) remained unchanged at 3.3 years. By
contrast since then, the average age of the hgv fleet has fallen
steadily, averaging just 2.7 years in 2005. [20]
The Committee should oppose any move to return
to a Fuel Duty Escalator.
Fuel duty increases undermine UK competitiveness
The fuel duty increase fails to take account
of the Government's own guidelines on environmental taxation.
This states that for "green tax" to be acceptable it
must meet four key criteria set out in Tax and the Environment:
using economic instruments 2002, one of which is for the tax measure
not to have harmful effects of UK competitiveness.
UK diesel duty is twice the level of our close
competitors whose carriers have a cost advantage over UK hauliers.
The Road Haulage Task Group established by the Treasury in 2005
and which reported at the Pre-Budget Report 2006 concluded that
even when higher employer social contributions on the continent
are taken into account, hauliers costs are 5% lower in France
and the Netherlands and 10% lower in Spain and Italy relative
to a UK haulier. For many consignments road freight represents
the only practical means of moving freight for UK businesses.
Exacerbating the transport cost gap that already exists by increasing
fuel duty therefore undermines the competitiveness of the UK economy.
The Committee should call on the Government
to follow its own guidance and consider the impact on international
competitiveness that further diesel duty increases will have.
The parallel gas oil duty increase undermines
the viability of rail freight
The decision to press ahead with a duty increase
on gas oil of inflation plus 1 pence per litre alongside the increase
in road fuel duty will directly affect the cost competitiveness
of rail freight relative to road transport services. Rail offers
industry an important alternative to road, particularly for bulk
freight movements and for intermodal container movements. For
bulk freight movements, for example aggregates and coal, there
is no short or medium-term viable alternative to rail for rail
users, who are often locked into rail through their contracts
and logistics processes. Raising gas oil duty for these customers
therefore directly impacts on their competitiveness as the higher
costs are passed onto the customer by the rail freight service
provider. For ISO container traffic and intermodal movements,
the gas oil duty increase affects the cost competitiveness of
rail freight compared to road. The 2006 duty increase in gas oil
is the third in three years, raising duty by 82% from 4.22 pence
per litre (ppl) in 2003 to 7.69 ppl in 2006. This sustained rise
in the duty on gas oil, alongside the commitment by the Chancellor
to further "above inflation" rises in gas oil in the
future, undermines any cost attractiveness of rail freight for
transport users in these sectors.
The Committee should call on the Government
to abandon its current fuel duty escalator for gas oil, or press
for rail freight b to be excluded from above inflation increases
in the future.
Q2 The tax and incentive regime for biofuels
FTA welcomes measures contained in the Pre-Budget
Report to underpin the development and uptake of biofuels. Having
taken the decision to support through the tax regime industry
investment in developing sources of biofuel and the take-up of
biofuel by road users use through the taxation regime and through
grants, the Government needs to ensure policy consistency over
time. The Government must not fall into the start—stop approach
that it took to liquefied petroleum gas, when tax treatment was
changed in the light of emerging emissions evidence with no prior
notice to road users. This decision, taken in the 2003 Pre-Budget
Report left the road freight industry, which invested in vehicles
using this technology on a "whole life cost basis",
with assets which had uncertain residual values and spiraling
fuel costs.
The Committee should press the Government
for a long term commitment to supporting lower taxation and other
fiscal incentives designed to promote biofuels.
Q7 Other aspects of environmental tax and
incentive policy
Incentives for Euro 5 vehicles
FTA believes that the Chancellor should keep
under review tax incentives for investing in new Euro 5 trucks,
thereby leap-frogging mandatory Euro 4 technology.
The road freight industry argued before Euro
4 trucks became mandatory in October 2006 that the Chancellor
should hold back from incentivising new Euro 5 trucks until a
viable Exhaust Gas Recirculation Euro 5 truck was available as
an alternative to the Selective Gas Recirculation technology.
An incentive, for example in the form of a VED reduction, could
have forced vehicle manufacturers down a single technology path.
Indications from the EGR manufacturers are that
Euro 5 vehicles will be available around October 2007. A decision
on incentives for new Euro 5 trucks should be deferred until then.
The Committee should support industry's stance
that the Chancellor should review VED incentives for new Euro
5 trucks when a credible EGR alternative to SCR technology is
available.
January 2007
17 Road Freight Statistics 2005, DfT. Back
18
National rail trends 2006-07 Q2, ORR. Back
19
Pre-Budget Report 2006 page 170. Back
20
Vehicle Licensing Statistics, DfT. Back
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