Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 143 - 159)




  143. Good afternoon, Mr Dawson. Good afternoon, Mr Stubbs. Thank you for coming along this afternoon. We are very grateful to you for coming along. Thank you also for presenting your memorandum in response to the Committee's request. As you know, we are looking at fuel duty and in particular the Chancellor's position as he outlined it in the Pre-Budget Report last November or December, whenever it was, which was very interesting, to say the least. I would like to ask, first of all, before we ask you a few questions arising from your stated position, as it were, and the memorandum you have given to us, whether there is anything you would like to say by way of introductory remarks?

  (Mr Dawson) I think merely this, Chairman, just to say that we do very much welcome the thrust of the Committee's work in demanding more rigorous standards of environmental assessment. I think although both this and the previous Prime Minister have emphasised the role of sound science in environmental advance, the AA have certainly felt very lonely over the last five or ten years, seven years certainly, in calling for better research and assessment. We have found ourselves sometimes offering the only research which both Government and, indeed, all interested parties have used to justify particular positions, and that cannot be healthy. Of course, on top of that, we have also had to research and report the opinion of our ten million or so AA members. I can report to the Committee that although they do give us considerable licence and they trust us in matters of road safety and the environment generally, they give us absolutely no licence whatsoever in matters of fuel and taxation. That is my opening position to support sound science.

  144. Just coming back on that. We had Stephen Timms in front of us in a session before Christmas and he more or less had to agree that the Government in making a decision in the Pre-Budget Report about fuel duty had not subjected their decisions to any serious appraisal in the sense of environmental appraisal or any other kind of cost benefit appraisal. Do you feel the Government is doing sufficient research in this area? You have stressed that you are doing research, do you think the Government is not doing as much as it should in this area?
  (Mr Dawson) If we go back to the 1992-93 period, and indeed the five or six years thereafter, it was a wretched time for us. We were offering continuous research and we wanted to discuss and debate these issues. The fuel tax escalator was a particularly distressing experience because there was no evaluation of what its purpose was.

  145. There was no evaluation by the Government?
  (Mr Dawson) No evaluation.

  146. By any Government, Conservative or Labour?
  (Mr Dawson) No evaluation by any Government and, worse than that, there was no evaluation of the alternatives and what might be cheaper and more cost effective for families to achieve the same goals. One of our earlier pieces of research was where we commissioned the UK Centre for Economic and Environmental Development to give us a list and a price of the various CO2 reduction measures that were possible and how much they would cost relative to one another given that CO2 is a uniform pollutant. The fuel tax escalator just came out as an appallingly cost ineffective measure for families at about £2,000 per tonne whereas actually some of the measures were net benefits, things like insulation for example, insulation measures in homes.

  147. Leaving conclusions aside, not that you come from a particular position, you felt that objectively there was insufficient research being done into this area?
  (Mr Dawson) Absolutely.

  148. That is a view you would still hold, even today?
  (Mr Dawson) In the last two years, I have to say since we stepped up campaigning, as it were, to actually make explicit what the rate of fuel tax actually was, that seemed to change everything. As soon as we told the public what the rate of tax on fuel was, suddenly there was a great interest in the research and assessment of the measures. We did that to some extent because our German sister organisation said that we were letting Government get away with blue murder in terms of being too rational and too scientific, we were not engaging on both sides of the equation.

  149. Is it still the case that the objective independent research commissioned by the Government is still lacking?
  (Mr Dawson) It is lacking but it is getting better. They are now genuinely interested. We have serious discussions about the cost effectiveness of different measures, what they are likely to achieve and, if you like, a culture which cares about the environmental impact is coming into play.

Joan Walley

  150. In view of what you have just said about the importance of research, can I just ask you in terms of the research that the AA has done, or commissioned, how you actually look at the impact of time on that research? It might very well be the case that perhaps in the present situation with the present fuel duty within the present constraints, within the present confines of policy, one alternative way of doing things might not be acceptable or even perhaps understood by people. How are you taking into account in the research that you have done the effect that time would have so that people perhaps having acclimatised or got used to alternative ways of doing things could think that might be a better alternative?
  (Mr Dawson) I think time is actually very important in this because our fundamental position has developed that it is actually technology reinforced by a benevolent taxation system that is the key to this. Again, it was remarks by our German sister organisation that drew our attention to the impact of technology when they said that the Federal Government was going to have difficulty in maintaining its revenues from fuel tax in the face of the increasing fuel efficiency of vehicles, remembering that the German vehicle fleet is more efficient. So the time dimension is important because things like the EU/ACEA agreement gives the manufacturers and the EU and consumer time to say "These are the clear goals". When we were able to lobby effectively for the 2005 Euro IV regulations, and the 2008 EU/ACEA agreement, we knew that time was absolutely fundamental. The industry, whether the oil industry or automotive industry, has to have clear time to see what the goals are going to be. And this also applies to safety as well, which is the third goal. Toxic, greenhouse and safety are the three areas where we have been lobbying for these longer term goals so that, if you like, the tax system can then reinforce what the manufacturers are able to offer.

  151. That is something I would like to see more factored into the research and policy initiatives which come out of that. Just following on from that, can I just ask you a little bit about the social impact of raising fuel duty because that is something which has been of a great deal of concern, I think, to a lot of people. Do you see any alternatives to address these except by reducing petrol prices?
  (Mr Dawson) It is very interesting, the research that we did in October and November was struggling—we had the political position we had—and we were struggling to find measures which actually were going to reinforce and be helpful to environmental and transport policy as well as actually being, if you like, acceptable to the public at large. What we found was that a reduction in road tax and a reduction in fuel tax mixed together was the most popular with C1/C2 socio-economic classes, particularly the people who were being hardest hit. In other words, it was not all about petrol prices. Unlike the higher income groups, the C1/C2s actually preferred the blend of a £50 reduction in road tax alongside the fuel tax reduction. I think everybody who was benevolent seized on that because clearly we all know that fixed prices can come down and help the family budget and a tendency to keep variable charges higher, and there are various ways that you can do that within a tariff of taxation, is a better transport and environmental mix.

  152. Is that not really just relying on some kind of populism as a basis for tax policy?
  (Mr Dawson) No, no. It is actually very well grounded in the economic theory for transport and environmental management. Higher marginal costs and lower fixed costs for the same tax take are much more efficient in transport and environmental terms. The lower you can make the fixed costs and the higher you can get people to accept the variable costs, providing that is the right policy mix, tends to be more efficient.

  153. How much would you say that is set against other policy options, other transport options, that people can then choose things?
  (Mr Dawson) It works its way into things like graduated vehicle duty in particular because there is almost no case for having other than a small administrative charge for the smallest, cleanest vehicles. If the Government and local authorities want to move forward with things like urban congestion charging the corollary is that fuel taxes can come down quite happily for the same overall revenue take.

  154. Can I just ask you as well about the polluter pays principle and that is something which I think many people subscribe to. Do you feel that as a premise, in relation to the private motorists, is one that should be pursued, the private motorist should meet the cost of pollution?
  (Mr Dawson) The AA has no problem with the principle of polluter pays with the huge proviso that it is non discriminatory. The problem with the polluter pays principle is it is often applied in a rather discriminatory way. Indeed, we commissioned David Newbery from Cambridge University to actually set out some principles for taxation. One of his three principles was that we should press for a non discriminatory taxation, so if it applies for all sectors of the economy why should it not apply for motoring, but not just for motoring as a convenient argument.

  155. Why did you go on then to describe the Government's position on the fuel duty escalator as green rhetoric? Do you still hold that view?
  (Mr Dawson) It is rhetoric in the sense that you have to be extraordinarily protected from the real political world not to know why and how the fuel tax escalator arrived. There was not a commentator, to put the short version, on the day after it was announced who did not talk about the green rhetoric and green cloak. It was basically a revenue raising measure dreamt up by the Treasury without any assessment for the purposes of raising revenue with some environmental wording in cover up.

  156. Just going back to my opening comments about time. Surely people would need to have time to take account of how their behaviour could change in response to changes in policy? Was that a factor that the AA took into account?
  (Mr Dawson) There are some underlying assumptions in that question, that people have to change their behaviour in some particular way, and I am not clear—

  157. You do not think they do have to change their behaviour?
  (Mr Dawson) No. This is a serious question, what are the goals? If we had not had an assessment and we do not know what the objectives of the fuel tax escalator are, how can we assess whether over time it has any value? If the goals are to reduce emissions, if the goals are to reduce congestion, if the goals are to reduce traffic, let us set those out and then test the fuel tax escalator against those goals and then look at the alternative measures we could adopt to achieve the same effect. It is only with the ten year plan that the Government has begun to put those tests forward and that is why you see the technological option just streets ahead of any of the others.

  158. Finally, can I just ask you what your objectives would be for the fuel duty escalator?
  (Mr Dawson) We think that the fuel duty escalator is unnecessary. The environmental goals can be achieved through a mixture of regulation, technology and revenue neutral tax adjustments.

Mr Loughton

  159. We are told that one of the bits of logic behind the fuel duty escalator is at least it gives a long term signal from Budget to Budget rather than uncertainty. Do you think there is any merit in that?
  (Mr Dawson) I think the first thing is what is the goal? If the goal is to meet the Kyoto targets, and, for example, we spell out that as what our objective is, then the ACEA/EU agreement is a phenomenally effective method and virtually all but achieves those Kyoto targets for the motorist. I think the underlying assumption is that the fuel tax escalator is necessary. There is no alternative is the kind of message I hear, but I do not accept that from a professional point of view at all. There are plenty of alternatives in order for us to hit, for example, greenhouse emission targets. We have hit the toxic emission targets and talk has completely dropped off the agenda. You only have to look at what the impact of Euro IV is, which is introduced in 2005, to see we are talking about three per cent for things like NOx of just a few years ago. Now we are actually being explicit and we have a Kyoto target the manufacturers are being bullied, if you like, by formal agreements into producing vehicles which will actually meet those clear targets. We must be explicit about what we are trying to achieve and not just argue for a fuel tax escalator because somehow that is good. Good for what and what are the alternative ways of achieving that objective which people might accept and support? Happiness for us was going on national television to support the Chancellor and explain to our members that graduated VED meant that gas guzzlers would pay more and smaller, cleaner vehicles would pay less in a revenue neutral package. That is happiness. Happiness is not standing in front of cameras complaining and railing at all and sundry because of the wretched fuel tax escalator. We must steer away from policies which gratuitously hurt.

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