Taxes and charges on road users - Transport Committee Contents

Memorandum from Professor Alan McKinnon and Ms Maja Piecyk, Heriot-Watt University (TAX 43)


  The Committee's "Call for Submissions" asks if the "taxes and charges paid by motorists capture the external costs of congestion, local air and noise pollution, accidents and CO2 emissions". The same question can also be asked of other road users. In the course of a Green Logistics research project,[83] we have tried to assess the extent to which the taxes paid by heavy goods vehicles (HGVs) cover their allocated infrastructure, environmental and congestion costs. Using data for 2006 and external cost valuations employed in the DEFRA-commissioned study of the external costs of food distribution,[84] we found that taxes on HGVs covered approximately two-thirds of their total infrastructure, environmental and congestion costs.[85] Congestion costs accounted for 40% of the total. If they were excluded, taxes on HGVs would more than cover the infrastructure and environmental costs (with a 12% surplus). The extent to which the external costs are covered by taxes varies with vehicle weight class. It is lowest for light rigid vehicles (between 3.5 and 7.5 tonnes) and highest for the heaviest category of rigids.

Internalisation calculations of this type are clearly sensitive to the assumptions made and the monetary values attached to imponderables such as the health effects of pollution, climate change and the value of time. Another study[86] which uses the 2003 sensitive lorry mile (SLM) valuations of externalities found that the degree of internalisation was substantially lower than we calculated. This highlights the need for a single agreed set of monetary values for transport externalities. The Department for Transport is currently revising its SLM valuations and these will probably become the new standards.

Internalisation studies can also produce different results for other reasons such as the treatment of VAT and adoption of either marginal or average cost values. In our study of the internalisation of HGV costs we included VAT on the grounds that it is passed down the supply chain and ultimately borne by the final consumer. Some other studies have excluded it arguing that only those taxes which have a direct bearing on the vehicle operators, and are thus be likely to influence their behaviour, should be included. Our study also compares tax with average values for external costs, whereas other studies have employed marginal cost figures. In the case of those external costs whose relationship with traffic volumes is non-linear, such as congestion and noise, the marginal costs can be much higher than the average costs. The use of marginal costs is appropriate in the case of the SLM assessments of Freight Facility Grant applications as these grants are designed to divert additional lorry from road to rail. It is less appropriate where, as in our study, the objective is to compare total taxes paid by HGVs with the total infrastructural and external costs allocated to this category of vehicle.

  Another study that we have undertaken, again as part of our Green Logistics research project, has examined discrepancies in official estimates of CO2 emissions from lorries in the UK.[87] Depending on the definition of trucking activity, the degree of reliance on survey, vehicle test-cycle and traffic count data and the geographical scope of the calculation, estimates can vary by as much as 30% for both a single year and a longer term trend. In recent years differing estimates of CO2 emissions from HGVs have emerged from official sources, while the corresponding statistical series have undergone major revisions. For example, between January 2008 and March 2008 the estimated growth in CO2 emissions from HGVs in the UK between 1990 and 2004-05 was revised downward from 30% to 10%. As a result of changes to government estimates of the fuel efficiency of HGVs reported in August 2008,[88] the percentage growth will have to revised down by a further 0.5%. As the methodology evolves and new data sources become available, it is inevitable that some revisions to key parameters, such as CO2 emissions, will occur. They can, however, frustrate the policy-making process and erode the confidence of industry stakeholders in the validity of the figures.

  The Committee should also note that the unreliability element in congestion cost estimates is quite crudely calculated. Much of the research on the effects of traffic congestion has been confined to its direct, "on-the-road" costs and relied heavily on estimates of average increases in journey time. The average number of seconds lost per vehicle-km due to congestion are multiplied by standard costs for driver and vehicle time. Previous studies,[89] including the one which determined the current set of SLM values, have added 25% to average congestion costs to allow for the variability in transit times. Recent estimates of unreliability costs have been based on the DfT's INCA software package, though we understand this has been calibrated with reference to a limited number of real-world applications. Earlier this year we produced a report[90] for the OECD which examines the effects of traffic congestion on the reliability of logistics operations in the UK. It highlights the complexity of this issue, particularly when consideration is given to the knock-on effects of congestion at business premises and the inter-relationship between congestion and other causes of unreliability in companies' supply chains. Our study did not attempt to put a monetary value on congested-related unreliability but it may help to inform future attempts by government economists to cost it more accurately.


  In previous written and oral evidence to the Committee, Professor McKinnon criticised the government's plans for a Lorry Road User Charging scheme which were abandoned in July 2005. This LRUC scheme was poorly aligned with the government's declared objectives at the time and would have been both unnecessarily complex and expensive had it gone ahead. The government therefore made the correct decision in not proceeding with it. It is very regrettable, however, that substantial public funds were squandered on this abortive LRUC scheme.

If the sole objective of a road user charging scheme for lorries is to "level the playing field" with foreign operators and correct the current fuel duty anomaly, a much simpler distance-based charging system could be developed involving the collection of mileage data from the tachographs of both British and foreign-registered vehicles. The system that our research centre proposed in evidence to the Committee in 2005 still merits further consideration.[91] It is worth noting that a recent review of the options for achieving tax parity between British and foreign-registered trucks, conducted by Pricewaterhouse Coopers for the Freight Transport Association, recommended a system similar to the one that we proposed in 2005. In this "Option 3", "HGV hauliers would receive a (fuel duty) rebate according to the distance travelled in the UK" with "miles per gallon (to be set by HMT) as a proxy for fuel use". This further strengthens the case for a reassessment of our proposal. The adoption of a vignette-based charging scheme, as currently being discussed, has the obvious disadvantage that it takes no account of the distances foreign-registered lorries travel in the UK, almost entirely on fuel purchased outside the country.

  Our analysis of the internalisation of the external costs of HGVs, suggests that in 2006 foreign-registered lorries should have paid around £300 million in taxes for their use of UK road infrastructure and their contribution to congestion and environmental damage. The inclusion of these foreign vehicles reduces the overall degree of internalisation of infrastructure, congestion and environmental costs for all lorries (over 3.5 tonnes) operating on Britain's road to 64%. It is clearly a major anomaly that virtually none of the external costs imposed by foreign trucks are recovered in taxation. This not only puts British road hauliers at a competitive disadvantage; it also deprives the UK Exchequer of substantial revenue and breaches the accepted principles of rational road user charging.

October 2008

83 Back

84   DEFRA (2007) "Reducing the External Costs of the Domestic Distribution of Food by the Food Industry". 

85   Piecyk, M and McKinnon, A C (2007) "Internalising the External Costs of Road Freight Transport in the UK" (download from green logistics website). Back

86   Metropolitan Transport Research Unit (2008) "Heavy Lorries-do they pay for the damage they cause". Back

87   McKinnon, A C and Piecyk, M I (2008) "Measuring CO2 Emissions from Road Freight Transport: A Review of UK Experience" (download from Green Logistics website) Back

88   Department for Transport (2008) "Road Freight Statistics 2007". Back

89   Sansom et al (2001) "Surface Transport Costs and Charges: Great Britain 1998" DETR; SRA (2003) "Sensitive Lorry Miles-Results of Analysis". Back

90   McKinnon, A C, Palmer, A, Edwards, J and Piecyk, M (2008) "Reliability of Road Transport from the Perspective of Logistics Managers and Freight Operators". Back

91   McKinnon, A C and McClelland, D (2004) "Taxing Trucks: An Alternative Method of Road User Charging" Back

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