Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 160 - 179)

WEDNESDAY 10 JANUARY 2001

MR JOHN DAWSON AND MR JOHN STUBBS

  160. I would share your frustration. A number of witnesses we had amongst Government ministers seemed to have different reasons for wanting the fuel escalator developed and introduced or maintained or extended. On the fuel efficiency issue, can I play the devil's advocate again on the fuel duty escalator. Do you not at least think that it has helped to encourage the development of fuel efficient vehicles?
  (Mr Dawson) My earlier answer indicated our whole policy has been developed at a European level where, frankly, the German car fleet is much further ahead. We had the benefit of our sister organisation's research laboratories. We were just playing in a European game where the domestic game and the fuel tax escalator was largely irrelevant to the real world. If you think on what happened with the EU/ACEA agreement and why it was such a landmark, and what we had at the European level, which is ten times bigger than the UK level, is an agreement by the European manufacturers to hit this target. On top of that, you then had the Japanese and the Korean manufacturers agreeing in Europe to meet that target with all the blow back that had to markets across the world. The impact of that agreement at European level has been an enormous fillip globally in order to address a global problem. Britain's domestic marginal fuel tax rate is really neither here nor there in addressing the global warming problem but that agreement was of global significance.

  161. On a European level, surely the attractiveness of fuel efficient cars, cleaner fuel cars, to the purchaser of those cars—because they tend certainly, as it stands at the moment, to be more expensive when they come to the market—must be the comparative cost of petrol against LPG or more fuel efficient fossil fuel cars?
  (Mr Dawson) It is a very important point you raise because one of the issues which you suggest, and I think I have seen some remarks from the Committee elsewhere reinforcing this, is that if the fuel tax escalator revenue had been used to foster CO2 reductions there would have been, if you like, a different political and public acceptability case. It is plausible that you could come up with a system which actually said "Right, here is the increase in fuel tax but we are going to use it to make grants for more CO2 friendly vehicles". Certainly I have been in Japan and discussed with manufacturers there the pricing policy on, for example, the Toyota Prius hybrid vehicle where there is a gap between the cost of production and what the market is willing to pay. The Japanese view there to me was "We can put it on the market at the price where the whole life cost is exposed to consumers and they will pay a bit more because over the lifetime of the car they will save money on fuel but beyond that if there are any external benefits we would expect some kind of support".

  162. The consumer largely, I am afraid, does not look at the whole life costs, it looks at the Toyota Prius costing £16½ thousand compared with an Astra—I am not a car expert—costing maybe £12,000 and they will then make that valued judgment. Even with the advantage of a power shift, a drop in money of, say, £1,500, at the moment there is still a considerable percentage difference. If they are faced the very first time they go to fill up that car, if it is fossil fuel, with a substantial difference between the cost of petrol as opposed to the cost of less petrol, part electric or LPG or whatever, then that is still a significant factor on which the escalator has played an important part whether one likes it or not.
  (Mr Dawson) I would dispute that. I would like to think more important to the future economics of these vehicles is the development of different ways of paying for vehicles where the residual value of the vehicle can be factored into the cost of ownership. Some of those changing financial methods to buy or run a car may be quite important.

  163. I do not disagree with that. The trouble is we are talking long term and we are talking theoretically, we are not talking about circumstances which exist now, and certainly did not exist when the fuel escalator was introduced in 1993. I think we share a degree of agreement. Can I just turn to a comment that Stephen Timms made when he appeared before this Committee before Christmas that the Treasury would consider increasing fuel duty again if oil prices fell dramatically. Now on that basis that you have acknowledged the quid pro quo in other areas, be it congestion charges going up therefore taxation rationale could come down, surely you would agree with his synopsis?
  (Mr Dawson) I think I would like to put it this way. If a rationally based case, which actually showed net advantage from one strategy rather than another, is put forward, it is much easier to get accepted than one that is fundamentally dishonest. The proposition has got to actually be advanced at the time in the face of the other alternatives for achieving the same objectives. To take some of the woolliness out of that, the AA was very happy to support the catalytic converter despite the increase in the cost of the car and particularly the maintenance of the car, as it were. The benefits were so significantly worthwhile against the additional costs of about three, four or five per cent on initial purchase and £300/£400 to replace later on. In other words, the case was made. The case for the fuel tax escalator is frankly not made and certainly against revenue neutral options is not made.

  164. This is specifically not an escalator question. If the price of oil dropped below $20 per se a barrel by the time of the next Budget, therefore the price of a litre of petrol could have come down by a few pence, albeit it only represented a very small part of the overall price, then would you support—particularly if the oil companies had not reduced the price they charge for petrol at the pumps—Stephen Timms' logic of increasing the taxation element by making a value judgment at that time before the Budget?
  (Mr Dawson) I think the prior question, and it is not dodging it in any way, is for what purpose? The question is what is the objective of increasing fuel tax other than revenue? If you can be explicit in the proposition as to what benefit you are looking for, then we can then say there are other ways or there are not other ways of achieving that benefit. I think this is absolutely central. What is the point of this high tax? We have the highest tax on fuel in the developed world. We have the highest price of fuel in the developed world. We are way out of line. We have a revolting public who do not believe that it is serving any environmental purpose. We have streams of experts who say that it is totally disproportionate as a policy measure. What on earth are we discussing it for is my question.

Chairman

  165. Petrol in America is very much cheaper than it is in Europe. Are you saying there is no link between the price of petrol in America and the way they use cars by comparison with Europe?
  (Mr Dawson) This is actually quite an interesting question because it may or may not be the case. If you take Italy, which is at the other end of the scale, they historically have had a higher price on petrol and have run pretty small cars and, indeed, a fair number of scooters as well. There is a kind of cultural problem linked here. You may say in America well, yes, historically it has been the case and as a result the culture has grown up to have big cars and vice versa, that even now if you start changing the price of fuel you are not going to overcome that historical tradition. I think the difference that faces us looking forward is that we are not looking at the fuel efficiencies the likes of that we have historically been concerned with. I think I ought to bring John Stubbs in to point out that we are beginning to talk about 100 miles per gallon cars, we have been talking about running cars and the technologies of running cars which are not emitting carbon at all, we are talking about technologies which are absolutely completely clean or even positive. In the face of those kinds of rates of technological change and improvement we need to be very clear as to what we are arguing with things like the fuel tax escalator. It is a very different future in terms of technology.

  166. That is all tomorrow. The Government has a problem today. Any Government has a problem today, that is all tomorrow.
  (Mr Dawson) If I was to say to the Committee how many people in the environmental world were aware that the CO2 emissions from cars had not grown at all during the 1990s that would probably be a surprise. The fact that we are beginning to forecast steadily falling CO2 emissions in the future is of enormous relevance to any debate on the fuel tax escalator, quite independent of the tax rate.

Mr Jones

  167. In the course of your answers, Mr Dawson, you made reference to what I might describe and you might describe as a certain lack of rigour in what the Government's objectives are and you may have some point. Would you not concede that regardless of what new technologies may be able to do to reduce the issue of CO2 emissions, there may be a purpose in reducing the amount of vehicles using roads or the growth of vehicles using roads which is not dependent on CO2 production?
  (Mr Dawson) Yes. This is where I think things have advanced so much in the last year. For the first time a generalised anti car feeling has begun to crystallise into what do we not like about the motor car and what do we like about the motor car. We do not like congestion. We do not like toxic pollution. We do not like CO2 emissions. We do not like accidents. We do not like the intrusion of the car into certain living spaces. I think what we need to do is be much more specific about the outcomes we are trying to achieve. Therefore, we were happy to welcome what the Government started in setting out much more explicitly what the goals, the policies, should be. Then you can argue, well, what role does fuel tax have in delivering any of those non emissions goals? It turns out, of course, that the answer is extremely little. It is largely irrelevant. The work we had done from Stephen Glaister showed that whatever modest effect putting the price of fuel up actually has on demand and whoever it hurts, it has even less effect on changing mileage. It is a completely bonkers instrument in terms of trying to influence mileage driven. No doubt the intellectual arguments for congestion charging are much stronger because they actually impose prices which are per journey and based on particular times and places where problems are occurring. A flat rate instrument like fuel tax has no serious place in any non emissions policy.

  168. I conceded on behalf of the Government that I am a Member of and, indeed, in the previous Government that there may have been a lack of clear objectives. Do you not see as one, if not the premier, organisation representing motorists that you have any duty to put forward what objectives might be and how you might meet them rather than simply saying "Do not do this to us because our members do not like it"?
  (Mr Dawson) You may know that we have argued very strong and hard for five or six years for the reform of road taxation and greater investment in transport. We were instrumental in bringing all parties together to develop an investment plan for this country's transport. I think, if you like, perhaps the proudest monument we had before us this past 12 months was the Government's ten year plan and a much more objectives driven approach and investment driven approach to meeting environmental and transport objectives. I do not think I need remind anybody that this country is in a transport crisis and it is both a joy and a pleasure to us that this plan actually helps the environment and will help our transport system and help us move around that much the better. I think the figures are there to be criticised that the Government has actually produced but we believe they are absolutely on the right lines.

  169. The AA say more public transport and congestion charging, please?
  (Mr Dawson) The AA has been a most vigorous supporter of public transport improvements. Our members want to use public transport, apart from a few what we call "devotees", where it makes sense and works for them. Attractive, affordable public transport alternatives are vigorously supported by the AA and have been for years. The congestion charging area is where we put on our thinking caps and put, perhaps, some of the most progressive proposals on the table which is the fundamental reform of road taxation where the revenue from transport use is actually put into one fund and we have different tariffs about how we pay—if so it is cheaper rural motoring, cheaper off-peak motoring, and then there may be a case for arguing more expensive motoring at busy places and busy times or in environmentally sensitive areas.

  170. Do you think John Prescott's department's suggested hypothecation of congestion charging ought to pay for these public transport links?
  (Mr Dawson) Since 1995 and the advice of David Newbery at Cambridge we have been arguing for hypothecation in transport and we have welcomed some of the Chancellor's concessions both on fuel tax in principle and in congestion charging. What we are not in favour of is generalised promises instead of institutional reform. We want clear separation of a tax for general expenditure, schools and hospitals, and a charge for transport. That is a fundamental call that we have made.

  171. It has been argued that the effect of the road tax escalator has at least been to slow the growth in the rate of transport. Leaving aside the environmental benefits that that may bring in, less carbon dioxide, you say technology could do that anyway, is there not a benefit in increasing the efficiency of our current road network if we slow the growth in the amount of vehicles using it?
  (Mr Dawson) I think to concede, and to put it the other way round, the Second World War may have had benefits in developing radar. Not everything is without any good whatsoever. The question is whether it is proportionate or it is not proportionate. The elasticities are such that seeking to reduce traffic growth through fuel tax does not really have any material effect, it is about a minus 0.3 elasticity which is absolutely swamped by the normal growth in incomes in any year, so although it has some effect it does not have a material effect. Then, of course, where it reduces demand has pretty little relationship to where you would want to reduce the demand. If you want to reduce it in rural areas to poorer people then, fine, the fuel tax escalator is a very selective and effective measure. If you want to reduce it in urban areas then it is a completely bonkers instrument, as I said.

  172. You have taken the view on behalf of your members that consecutive governments have seen motorists as an easy target. I think you have more or less said in the course of your contribution so far that the purpose of the fuel duty escalator was to be a milk cow for the Treasury rather than anything else, so you regard motorists as being unfairly treated?
  (Mr Dawson) I only have to report the views of our members. We did some survey work to actually explore their views in some depth on this issue. One of the things we did was actually research was what they thought the rate of tax on fuel was and what they thought was actually spent on developing and maintaining the roads. It was the point in the research where it was revealed to the members what the actual rate of tax was that was so difficult for the interviewers to move on from. People thought it was utterly outrageous when they discovered what the rate of tax was. Most people thought about half the price of a litre was tax and half was spent on the roads. When they found it was 80 per cent and that about 14 or 15 per cent was spent on the roads, they were absolutely furious.

  173. On international comparisons, an independent survey which was commissioned by the Scotland Office found that motorists in seven countries, including France and Ireland, pay more tax than we do in Britain and British motoring taxes are slightly below the European average once road tolls and taxes on car ownership are included. If we are being unfairly treated, if that survey is reasonable, then the rest of the Europeans are being even more unfairly treated.
  (Mr Dawson) I am not familiar with the details of that particular work. There have been some assumptions in this type of work which classify tolls that you can avoid as a tax. It is somewhat missing the point.

  174. You can avoid a toll but you can avoid buying more petrol, can you not?
  (Mr Dawson) Therein lies a fundamental issue. The particular, deep objection to the fuel tax escalator policy is that it discriminates entirely against the very group of society least able to bear it, who are most reliant on their vehicles. If you are talking about motorists in a rural area in France, for example, comparing it with the average yield from French motorists, including the high income people who pay a lot of tolls, you are not comparing like with like because the rural motorist in France does not have to use the autoroute system.

  175. I am a regular toll payer because I live in Wales, so I pay this toll that virtually nobody else in Britain pays. I do not regard that as particularly fair. I would imagine that the French who happen to live near toll roads do not either.
  (Mr Dawson) The difference, between the set of watery crossings which I believe you are referring to, is basically a monopoly and cannot be avoided. The principle behind the French autoroute network is that there always is an alternative available and many of those alternatives are of a very high standard.

Mr Chaytor

  176. In terms of the alternatives, if I want to drive from Calais to Avignon and get there in a few hours, there is no alternative other than to pay 400 francs each way on the motorway. If I want to drive from Dover to Edinburgh and get there in a few hours, it is free. Surely there is no alternative way of looking at it other than calculating the total cost of that journey. Although the cost of my petrol will be greater in the United Kingdom, the cost of the overall journey is likely, I would estimate, to be greater in France. If I want to spend four days driving from Calais to Avignon, I can drive toll free. I accept that, but if we are comparing like with like the overall cost in France will be greater than the overall cost in the United Kingdom.
  (Mr Dawson) Let me direct you to the AA website, where you can do a cost and time comparison.

  177. I do it three times a year and my wallet tells me what the difference is.
  (Mr Dawson) There is a clear choice and the choices are not unacceptable, but the value added to you, as a wealthy Member of Parliament, is such that you choose to pay. There is no way to avoid fuel tax. The lower income motorist tends to do lower mileage and a much more locally orientated mileage than the higher income group.

  178. There is a way to reduce fuel tax and that is to convert to a more efficient vehicle.
  (Mr Dawson) That is exactly why we have supported the graduated VED breaks to send the right signal, to help give more environmentally friendly choices to lower income groups.

  179. If we could move on to VED, how do you explain that? You are a supporter of the VED reductions, which are fairly marginal, a pound a week or so, because you think that provides sufficient incentive for people to change their behaviour, but you are an opponent of the fuel tax which is a more significant disincentive because you say it has no effect at all on people's behaviour. Is not the fact that what constrains your analysis is that the Automobile Association, as an institution, does not want to see any increase in costs on the motorist, regardless of the intellectual justification for it? How can it be that behaviour will be changed by a comparatively minor reduction in cost, but behaviour will not be changed by what you think is a significant increase in cost?
  (Mr Dawson) Your constituents and my members do not want to see increases in motoring costs. A more important point is something like graduated VED has the potential to be an important contributing instrument to a wider picture. If you can get somebody to change their car at point of purchase, every mile they do will be more fuel efficient. Graduated VED is not coming in at a time when that is the only change. What we are trying to do is to reinforce the introduction of these ever more fuel efficient vehicles. You must consider also company car tax reform and the move to CO2 measures rather than cc measures. In a longer term context, 2008 is only a milestone on a continuing process. We are trying to fundamentally inject cleaner, more fuel efficient, carbon free eventually, technology. The vision down the track is that the environment should be at the centre of taxation and regulation for motor vehicles reinforcing power shift schemes and so on. It is all part of friendly, acceptable policies which have been properly assessed and evaluated. Nobody likes change, but I think graduated VED is something we found particularly easy to accept because of the inherent environmental goodwill from the public. The fuel tax escalator produced the most appalling bad press for the environment, as far as we are concerned. Some of the quotes coming in from our members as to what they thought of the environmental objectives of the fuel tax escalator were setting the cause back very considerably.


 
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