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,
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,
we found that taxes on HGVs covered approximately two-thirds of
their total infrastructure, environmental and congestion costs.
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
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.
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,
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.
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
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
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
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.
83 www.greenlogistics.org Back
DEFRA (2007) "Reducing the External Costs of the Domestic
Distribution of Food by the Food Industry".
Piecyk, M and McKinnon, A C (2007) "Internalising the
External Costs of Road Freight Transport in the UK" (download
from green logistics website). Back
Metropolitan Transport Research Unit (2008) "Heavy Lorries-do
they pay for the damage they cause". Back
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
Department for Transport (2008) "Road Freight Statistics
Sansom et al (2001) "Surface Transport Costs and
Charges: Great Britain 1998" DETR; SRA (2003) "Sensitive
Lorry Miles-Results of Analysis". Back
McKinnon, A C, Palmer, A, Edwards, J and Piecyk, M (2008) "Reliability
of Road Transport from the Perspective of Logistics Managers and
McKinnon, A C and McClelland, D (2004) "Taxing Trucks:
An Alternative Method of Road User Charging"