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Memorandum submitted by the Freight Transport Association (PBR08007)
Summary · Fuel duty increases on commercial operators will not help achieve environmental goals · The current economic conditions combined with fuel duty increases will dissuade commercial operators from investing in newer, cleaner vehicles · The Government's decision to abandon the Aviation Duty proposals was the correct one as these would have disadvantaged the UK economy without achieving positive environmental results.
Submission
1. In this submission FTA will address the following areas of interest to the Committee: the risks and opportunities of an economic downturn and the Treasury's announcements on Air Passenger Duty and fuel duty. Fuel Duty
2. In his Pre-Budget Report, the Chancellor announced an increase in fuel duty - for all vehicles - of two pence per litre (ppl) from 1 December 2008 and by a further 1.84ppl from April 2009. This was presented as balancing the also announced cut in VAT. 3. As businesses, hauliers gain refunds on VAT and so therefore this is a cost increase for commercial operators. 4. The imposition of the fuel duty increases does not differentiate between such essential users and car drivers. While car drivers may have a choice in terms of whether they use their car or public transport, essential users do not. 5. The tax change brought about by the PBR therefore will have the effect of increasing the tax take from road users, but only by taking more from the sector who are not able to reduce their use of road transport. 6. The Government has once again missed the opportunity to focus road fuel duty on private users, where far greater environmental improvements could be gained as behaviour is more price sensitive. 7. FTA has presented options for 'decoupling' the fuel duty paid by hauliers from that paid by private motorists to the Treasury, but these arguments have been rejected by the Government. Impact of economic conditions 8. The December increase alone represents an additional cost burden to the logistics industry of £533 million. FTA economists estimate that the cost of the April increase will add a further £900 per truck to that bill. With many operators having fleets in the hundreds, this equates to a significant burden, one which some operators may not be able to bear and which may result in high levels of redundancies and possibly insolvencies across the sector. 9. Consequently sales of new trucks decreased significantly over the second half of 2008, with most operators looking to consolidate their fleets, rather than invest in new vehicles. With the additional fuel duty burden, this situation is likely to continue, resulting in older vehicles remaining on the road for longer. 10. This will have clear environmental impacts due to the improved cleaner performance of newer road haulage vehicles. Air Passenger Duty 11. Through 2008 the Government consulted on their intention to replace Air Passenger Duty (APD) with a new Aviation Duty which would be charged on a 'per plane' basis. Thus for the first time, and alone amongst EU countries, air freight would be directly taxed. FTA argued against this change, due to the negative impact it would have on the UK economy. 12. In the PBR the Government announced their decision to abandon this change and instead reform APD. 13. FTA supports the decision the Government made as it prevented a competitive disadvantage being added to the UK economy, which would have made locations on the Continent a better place to do business. 14. FTA believes this decision, as far as it impacts freight, will not have adverse consequences for environmental performance. This is because the Aviation Duty (AD) scheme as proposed would not have improved overall climate change emissions involved in the UK supply chain. 15. The Government were open in discussions with industry that the main rationale for AD was to increase Government revenue: any environmental benefits would have been fringe benefit rather than the aim of the measure. 16. Where UK based businesses require air freight services these would have continued as sea or land transport systems cannot offer the speed or control offered by air freight. It should be noted that air freight is already significantly more expensive than other modes of transport, and so where it is used for freight shipments it is because the speed that air services provide is an absolute requirement. 17. AD would however have changed industry operations - but not to stop goods being air freighted. Rather operators would have switched to utilising continental airports such as Amsterdam, Brussels or Paris, and then road freighting goods into the UK. The resulting trucking to the UK would in many cases have actually increased the carbon footprint of goods delivered to the UK. 18. It should be noted that the AD scheme as devised took no account of the environmental performance of the aircraft involved and consequently would not have incentivised operators to make more use of newer cleaner aircraft. Industry supported making such Duty based on environmental performance, but the Government concluded this was too complicated to implement. Alternative measures to address environmental impacts 19. Aviation is a global activity with global environmental impacts. For this reason measures to address the environmental impact of the aviation should be dealt with at least at a regional level. 20. Given the nature of the operation and the technologies involved, aviation is the single hardest area of industrial activity in which to improve environmental performance - no equivalent alternative service exists whatever price is charged. Therefore policy mechanisms should be used that most effectively enable aviation to contribute to overall environmental improvements. 21. On both these counts the EU's Emissions Trading Scheme would appear best placed to be the tool to manage and reduce aviation's environmental impacts, and FTA would support the use of that scheme as the primary tool for this purpose.
January 2009 |