Select Committee on Environmental Audit Minutes of Evidence

Memorandum from Transport 2000

  Our views on the issues of air quality which you raise on the Pre-Budget report are as follows:


  We support the 3p duty reduction on ULSP, since this will not only lead to a reduction in local air pollution, but, through improved engine technology, to reduced carbon dioxide emissions.

  However, we oppose the 3p duty reduction on ULSD. The paper "Using the Tax System to Encourage Cleaner Fuels: The experience of Ultra-Low Sulphur Diesel" by HM Customs and Excise charts the steps by which duty on ULSD was reduced by 3p in total and in consequence this form of diesel became virtually the sole form used. It is now proposed to apply a similar process to ULSP, with a reduction of 3p. It does not seem to us to be justified now to reduce the duty on ULSD by a further 3p in order "to maintain the existing balance between duty rates on the most commonly available petrol and diesel".

  This will cost £615 million in 2001-02, in addition to the £300 million annual cost of the 55 per cent reduction in lorry VED.

  The NERA report showed lorries generally not to be meeting their environmental costs. The proposed £100 million fund for scrappage, etc could reduce but not eliminate lorries' excessive impact on air quality.

  In opposing the 3p reduction in duty on ULSD, we agree with the Parliamentary Select Committee's final conclusion, which remains valid whatever the level of oil prices:

    "We have not accepted the principal arguments by our witnesses from the road haulage industry, that fuel prices and VED are too high, and should fall. We believe that in the past haulage rates have been unrealistically low, and have not reflected the true costs imposed by the road haulage industry on our society. The real increases in fuel duties, although imposed too rigidly in the face of rising oil prices, have gone some way to creating a sustainable market in road freight transport. If our objective is a safe and clean road haulage industry, which contributes less to pollution and congestion and which employs well-trained drivers, and a sustainable transport market in which rail freight is able to compete fairly with road haulage, then haulage rates must rise to reflect the true costs of freight transport. The small rise in the end-price of goods (only 1 or 2 per cent of the total price) that results is a price that we should all be willing to pay."[2]


  The proposal in the Pre-Budget Report will affect air quality and congestion in two countervailing ways. It is proposed to change the regime under which employers can pay employees using their private cars on business without the employee incurring income tax or NIC liability. The present regime authorises payments dependent on engine size (higher rates for larger cars). The rates reduce after 4,000 miles, reflecting the element of fixed costs in operating cars. The proposed regime will, after April 2002, authorise a flat rate of 40p, irrespective of engine size, for the first 10,000 miles and of 25p for subsequent miles. We support a flat rate, which will result in due course in smaller cars being used on business. However, the proposed rate of 40p is too generous and the 10,000 threshold too high. They will encourage more use of cars on employer's business. 40p is not only generous, but will appear very generous. For instance, a return journey between London and Manchester, of about 400 miles, will generate a tax free payment of £160, against a running cost estimated by the AA for a car of, say 1,400ccs of £74 and a perceived petrol cost of £42. This illustrates the incentive to use a car instead of a train (after the present disruption ends). The additional business mileage will offset the air quality benefits of the reduction in sizes of cars.

  We have suggested to the Inland Revenue that:

    (1)  the flat rate should be lower, say 37p (which is the present average authorised rate, thus making the change revenue neutral, as envisaged in Budget 2000);

    (2)  the threshold for the drop in authorised mileage rate should remain at 4,000 miles; and

    (3)  in view of the importance of business mileage in private cars, the Inland Revenue should regularly publish statistics on authorised mileage, so that its environmental impact can be kept under review.

  We have written to the Financial Secretary about these issues.

December 2000

2   Environment, Transport and Regional Affairs Committee, Fifteenth Report, The Road Haulage Industry, HC 296 (1999-2000), xlii. Back

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