Examination of Witnesses (Questions 200
WEDNESDAY 10 JANUARY 2001
200. I was very interested in your comments
just now about the green tax group, chaired by Mr Hanton, particularly
so in view of an earlier recommendation of this select committee
that we would like to see some kind of green tax commission, whereby
all the different issues involved with tax can be explored and
looked at, perhaps from the environmental audit perspective. Can
I ask either Mr Hanton or Mr Joseph: in view of the work of that
group, I assume that you will be happy about the polluter pays
principle, in that people should be able to face the true costs
of their actions that they impose on society. Can I ask you what
consideration your green taxation group has given to the pre-Budget
proposals in respect of how much private motorists and hauliers
are going to be likely to face the true costs of their actions
as a result of the pre-Budget report?
(Mr Joseph) In general, we do support the polluter
pays principle. We see taxation as one element in a package of
measures to achieve that. It is not the only principle. Secondly,
the group has looked at aspects of transport taxation and we have
taken a view on some aspects of the pre-Budget report. I would
not say that we have had detailed work done on the extent to which
motorists pay their full costs. We have done some work on particularly
the hauliers' aspects. The pre-Budget report proposals do not
make a huge difference in the overall costs of motoring for cars.
They make some changes, but we think they make some real differences
on hauliers. Our submission to the Committee reflects our concern
(Mr Hanton) On hauliers, there was some work published,
commissioned by the government last year, which showed that larger
lorries particularly did not meet their environmental and track
costs by quite large margins. Now we have about a billion pounds
of reduced taxation on lorries, particularly concentrated on the
largest lorries. That implies that hauliers as polluters do not
pay the costs of the pollution they cause, particularly the larger
201. Have you come up with any proposals which
could ensure that people do meet the full costs?
(Mr Joseph) In the short term, we are concerned about
the government's proposals on vehicle excise duty, which seem
to fly in the face of its own research that we referred to. The
government's proposals seem to be moving away from the polluter
pays principle towards what one official we discussed it with
referred to as indicative taxation. In other words, relativities
rather than actual covering of real costs. We are concerned about
that. In the long term, what we have arguedand the pre-Budget
report proposal for a Brit-disc is a step in this directionis
that we need a reform of road haulage taxation towards a system
that is about to be applied in Switzerland of, in effect, a pay-as-you-go
charge on lorries so that the biggest lorries travelling furthest
pay the most tax. This system is applied in some US states and
in New Zealand. In New Zealand, it replaces other vehicle and
fuel costs faced by lorries. We would argue that that sort of
system, which by the way other European countries such as Germany
and Austria are moving towards, would be a much fairer system
of taxation for lorries and would be a much clearer reflection
of the polluter pays principle.
202. In terms of proposals that are coming forward
or the dialogue between the Treasury and other organisations,
where do you think the impetus for developing that kind of policy
proposal could come from? Could it come from your group? Where
do you see the impetus for that new direction, if you like, coming
(Mr Joseph) We have put the principle on the table.
We think the government's adoption of the Brit-disc idea will
require them to at least have a dialogue with other European countries
about this because it implies a kind of payment at point of use
that lorries do not face at the moment. In principle, we are interested
in and are looking at the possibility of running some kind of
high level seminar where the experience of countries that already
run such a system of distance taxation on lorries could be shared
with officials in this country so that they could see what the
implications of such a system and its likely impacts are. We are
hoping to take a role in pushing this idea of making that better
understood. We have noted that so far officials, particularly
in DETR, seem rather uninterested in moving in this direction.
They are rather less interested than the likes of the Road Haulage
Association, who seem rather keen on the idea in principle.
203. I shall look forward to progress on that
with great interest. Can I move on to the fuel tax escalator?
I may have misquoted our former witness from the AA, Mr Dawson,
but I think he made some reference to the fuel tax escalator not
being the best possible tax for the environment. With the benefit
of hindsight and the work and expertise that your groups have,
I wonder if you feel the fuel tax escalator was justified on environmental
grounds or whether you would have chosen some different kind of,
dare I say, vehicle to pursue these objectives?
(Mr Joseph) The objective that we would adopt is not
to whack on as much cost for the motorist as possible, but we
do see the need for gradual, real increases in fuel and motoring
costs to reflect the wider costs of motoring. We believe that
the fuel duty escalator has helped, particularly at a time of
falling crude oil prices. We do not agree with some of the analysis
that the AA and its researchers have done.
204. Has the Committee details of where you
find yourself in disagreement with some of the research that has
been done by the AA?
(Mr Joseph) You will have some of it when we send
you the report we published today. If you look at the AA's own
research by Stephen Glaister and others, that implies that there
is a difference between long run versus short run effects; that
a ten per cent increase in fuel tax reduces traffic by three per
cent. That is just looking at fuel tax on its own. We see fuel
tax and indeed transport taxation as a whole as part of a package.
We see the objectives of that to do with carbon dioxide emissions,
which is the subject of the research we published today, not so
much in relation to air quality, where we agree with the AA that
regulation and other measures are a better way of dealing with
it; the issue of traffic growth and, to an extent, the government
objective to reduce the extent to which there is development of
housing and other development on green field sites. One of the
things about the USA with very low fuel taxes is the extent to
which that promotes large scale sprawl of the sort that they may
have space for, but we certainly do not. Research from the DETR
implies that fuel tax is part of a measure alongside planning
controls and so on for tackling that.
(Mr Potter) I think you did ask earlier on regarding
evidence for the effect of fuel tax on the volume of travel generated.
There was a study undertaken at the International Energy Agency
in Paris by Lee Schipper which did an analysis of fuel costs in
the USA and a number of European countries. It largely suggested
that the volume of travel was a function of the relative capital
costs, which are very important, and ownership taxes. There was
a very strong correlation that showed that those factors explained
the consequent travel behaviour and the amount of mileage undertaken
in each country.
205. Can I follow up the point you made about
the sprawl and the edge city development in the US? Within the
context of the pre-Budget report, I am looking at the proposals
on brown field as opposed to green field development, and I wonder
whether or not you would like to have seen more proposals for
equalisation of VAT between brown and green fields.
(Mr Joseph) In principle, yes. It is not a big area
of expertise for Transport 2000. It is for some of the affiliated
groups. Our point is that transport taxation is a policy lever
that helps that objective alongside the other, more direct levers
such as the brown field land measures that were announced in the
pre-Budget report. We have been lobbying for the transport taxation
reforms that are as much about carrots as about sticks. The tendency
is to see transport taxation as wholly about sticks and one of
the principal objects has been to look at ways of using the personal
taxation system to give people incentives for different travel
patterns. For instance, at the moment, if an employer provides
a parking space at work, that is fully exempt from tax. If they
provide a season ticket, that is fully taxed. We have been lobbying
with some major employers who have been caught by this to try
and look at ways of addressing that. We see it as important to
try and look at the full range of transport taxation measures.
The pre-Budget report does include some measures in this respect,
in relation to an allowance for car sharing, but there is a lot
more that could be done. Such moves would have wider benefits
in terms of things like the government's welfare to work objectives,
making it easier for those without cars to have access to jobs
and so on. The fuel tax escalator, it was argued by the previous
witnesses, was a relatively inefficient way of meeting objectives.
We would not agree with that because some of the underlying assumptions
that have been made by AA research we would disagree with. In
particular, we are concerned that the work of David Newbury downplays
certain external costs of road transport, climate change being
an example. Also, it assumes that travel follows growth in income.
Since the introduction of the fuel duty escalator, we have found
growth in the economy with growth in traffic significantly below
it, which has not been the case in the past. In the 1980s, for
instance, we saw a large growth in the economy with traffic growth
running ahead of that. The latest traffic growth figures suggest
that traffic growth before the fuel protests and the rail crash
at Hatfield had virtually ceased. It was a one per cent increase
in traffic, I think, on the motorway network in the second quarter
of last year, compared with the previous year. The growth on the
non-motorway network was basically nil. At the same time, growth
in rail, urban bus, motorcycle use and cycling had all risen substantially,
motorcycle use by 16 per cent and cycling by 5 per cent. In other
words, the trends were towards less use of cars or at least related
to the economy and towards alternatives. The Department of Environment,
Transport and the Regions' own background analysis to the 10 year
plan suggests that the fuel duty escalator, coupled with road
congestion and other factors, had led to this, so I think it is
unreasonable to say that that had not had an effect.
206. Could we come back to the question posed
earlier about Mr Timms's proposal before Christmas that, if the
price of oil came down considerably, we reserve the right to reintroduce
an escalator or a form of it to make up that shortfall. Is that
something you find attractive?
(Mr Joseph) As I indicated in an earlier answer, we
do not want to see the large scale variations in motoring costs
that we have had in crude oil prices. We see taxation as a way
of moderating that. We do see the need for more gradual increase
in motoring costs to reflect part of the move towards the objectives
we mentioned before: carbon dioxide emissions and green field
development. If crude oil prices started to fall, we would argue
that in principle increases in fuel duties would be necessary
with the proviso that there needs to be a rather better tying
in of the revenues from those towards other parts of the transport
package I mentioned. This is something we have developed as well
and we agree a little with the previous witnesses that there needs
to be a rather better link between revenue on motoring taxation
and spending on transport.
207. Without that hypothecating element, would
you support it or not?
(Mr Joseph) It is not a question of whether we would
support it; it is a question of whether there would be any public
acceptability. In relation to, for instance, rural motoring, which
is an issue that has been widely talked about, the research that
we published with the WWF suggests that reducing motoring costs
for rural areas is not a good way for helping rural areas. Spending
revenue from fuel taxation or motoring taxation on better rural
services so as to reduce the dependence of people in rural areas
on long distance drivingmore rural post offices, for exampleis
a much more efficient way of helping the poorest in rural areas
and addressing the problem that we found at the time of the fuel
duty process, which is the dependence on oil mobility that those
(Mr Potter) The work that we did looking at this suggested
that if you simply cut the costs of fuel and motoring in rural
areas it would just reinforce the cycle of depletion of the rural
economy as people drive to the cities or city edges to get to
the shops and so forth. Increasingly, the shops and facilities
in rural areas shut down. Almost paradoxically, reducing the costs
to rural areas worsens the economic plight there and requires
a more integrated approach towards the real problem, the heart
of which of course is a collapse in the rural economy. That is
just expressing itself in terms of the fuel protest rather than
getting at the heart of the rural problem. That appears to be
the basis of our analysis, which seems to have been supported
from other areas as well.
208. It is an interesting version of hypothecation
that people in the country should pay higher charges for their
petrol which are hypothecated into subsidies and retaining local
post offices or shops or whatever. Can we look at the ultra low
sulphur petrol which everybody is still looking for, and whether
you think the benefits of it for air quality and CO2
emissions outweigh the benefits of continuing with an escalator?
(Mr Joseph) We support the principle of what the government
has done on ultra low sulphur petrol provided that the benefits
feed through to the more fuel efficient engines that the manufacturers
have promised. The basis for ULSP has been that, with that, certain
types of technology can be enabled which will be much more efficient
and reduce CO2 emissions. In effect, that reduction
needs to be backed by a regulation making car manufacturers come
up with what they promise. Subject to that, we support the move
209. When do you anticipate that that kickback
will come into force? Effectively, we are talking about now and
the ongoing advantages of CO2 emissions, as you would
see them, of the escalator need to be outweighed now against the
sulphur reduction. Are you still saying as you did in your submission
that the ultra low sulphur petrol will reduce carbon dioxide emissions
now and when considering the fact that it is rather more energy
intensive to produce the stuff as well? Do you take full account
of all that in your equation?
(Mr Hanton) We did not comment on this in our submission.
We agree with the Chancellor's proposal on the basis that there
is an immediate improvement in sulphur and other emissions and
there will, in the longer term, possibly be an improvement in
210. In terms of the equation that we are looking
at now, the advantages that you say are from the escalator will
not be compensated for by the reduction to make it more attractive
to have low sulphur rated petrol when it comes in in the next
(Mr Joseph) In relation to the 3p reduction on ULSP
in the pre-Budget report, as we have seen in the last few weeks,
that can be wiped out or added to by changes in world oil prices,
so it is unlikely to have a major impact at that level on travel
behaviour. The Treasury has done some analysis, which we have
seen, which suggests that, assuming oil prices stay at roughly
the level they were at the pre-Budget report time, the effect
would be the same as if the fuel duty escalator had carried on
at the previous level of crude oil prices. In other words, the
changes in crude oil prices have done the job the escalator would
have done, even with the ULSP. Given the advantages of the ULSP
and the fact that the objective is not to keep the escalator but
to have a real reflection and allow people to gradually unhook
themselves from over-dependence on cars through gradual, real
increases in motoring costs, we support what the Chancellor has
done in that area.
211. We heard from the AA earlier that the government
is not properly evaluating the purpose of the escalator or, perhaps
more importantly, the alternatives. Are you satisfied that it
has done a proper environmental assessment of all the changes
in this package such as green measures in the pre-Budget report?
(Mr Joseph) We have not seen the detailed environmental
appraisal that has been done on this.
212. Do you think one has been done?
(Mr Joseph) I have no idea.
Mr Grieve: It was rather our impression
that none had been done.
213. The implication from your answer was that
there was one that had been done but you had not seen it. You
are saying that you have not seen anything?
(Mr Joseph) We have not seen anything.
(Mr Potter) We have not seen a government appraisal
but we have seen independent ones which we have looked at.
214. Which are those?
(Mr Potter) They are ones which have been undertaken
among the literature we have looked at. I have not come prepared
to answer that specifically but I could forward a note.
215. Yes. This goes to the central point of
our investigation, as to what appraisal was made in this rather
significant direction change in policy.
(Mr Potter) The degree of appraisal varies immensely
according to political expediency all the time.
216. Could you send us a note?
(Mr Potter) Yes.
(Mr Joseph) What we would disagree with
the AA on is their assessment of the cost benefits of the fuel
duty escalator versus other measures. The reason for that is that
their view on what the new technology that they were talking about
through the various European agreements will do to cars on the
ground is different from ours. The reason for that is found in
their own research where they include a very interesting graph
of average new petrol car fuel consumption between 1978 and 1997
and it is flat. That is at page six. The reason for that is that
people use more fuel efficient vehicles to buy different vehicles
and to drive further. People, for instance, trade up to sports
utility vehicles in the US or four wheel drive vehicles here and
the result is that the actual fuel efficiency of the vehicles
being driven has barely changed. One of the interesting things
in our research report produced today is that the United Kingdom
is at the bottom of the European league progress in the last five
years for reducing CO2 emissions from its car fleet
because of those sorts of changes. Our concern is that if, as
the 10 year plan suggests, real fuel costs fall by a fifth because
of changes in fuel efficiency, that will wipe out any impacts
of the European directives and agreements that have been talked
about. That is why we think that fuel duty increases need to be
conducted alongside technology changes.
217. There was a survey commissioned in the
summer by the RSPB on second hand car buying, which is a large
business in this country. It asked people their reasons for selecting
certain cars. Those who stated fuel efficiency for environmental
reasons were three per cent, well down the ladder. Those who cited
the colour were 9 per cent. That is a big problem with perceptions.
The environmental message has certainly not got this problem across.
The government obviously did not get it across during the fuel
crisis recently and organisations such as yourself might take
the blame for not having done your job, which is to promote those
(Mr Joseph) We tried and found that we were rather
frustrated that the government did not make more of these arguments
and relied on public spending as justification for the fuel duty
escalator, which we felt played into the hands of the members
of the AA who were quoted earlier. This was really about raising
money for public spending rather than having any environmental
justification at all. We think there is an environmental case.
It could have been stronger if it was tied to other things and
we think the government should have made that case. We, with others,
will be doing more to try and make that case in the future.
218. On company car taxation, do you think the
reforms go far enough?
(Mr Joseph) Can I differentiate the reforms on company
car taxation proper with authorised mileage rates for business
use of private cars? There are two systems, two sets of reforms,
being proposed. In relation to the company car reforms, we broadly
support those. We think they are very much moves in the right
direction and they reduce the incentives of the current system
towards unnecessary motoring to hit the mileage break points.
In relation to the authorised mileage rates, in our submission
to the Committee we indicated our concern on this. Our concern
is driven by the fact that the AA's own figures suggest that the
40p rate is far in excess of the real cost of running a car. We
said in our evidence that a return journey between London and
Manchester of about 400 miles will generate a tax free payment
of 160 pounds against a running cost estimated on the AA's figureswe
do consult the AA's website - of a car of 1400cc of 74 pounds
and a petrol cost of 42 pounds. That is why we are concerned about
219. Additionally, to the potential driver,
the benefit of getting money is almost immediate; whereas the
perception of the effect upon their vehicle is a much longer term
(Mr Joseph) Yes, it is. We support the principle of
the flat rate but we think 40p is too generous and the 10,000
mile threshold is too high. What is of particular concern to us
is that, with the company car system where there are figures in
the public domain where you can see how many company cars there
are, how much they are driven and so on, in the case of the business
use of private cars, the Inland Revenue have not published data
so it is rather difficult to see what the effect will be. We think
it is very important that they publish statistics on authorised
mileage so that the environmental impact can be kept under review.
Again, returning to the earlier question, this is one case where
we do not think a detailed analysis of the environmental impact
changes has been done.
(Mr Potter) Can I add a small point on that regarding
the mileage rates? The DETR have commissioned me to undertake
some research for them looking at the way in which the tax system
could be reformed to encourage modal shift or more environmentally
benign travel behaviour. As part of this, we have undertaken discussions
and surveys of companies regarding the current tax regime. One
of the comments that I got back from several companies that has
formed a recommendation to the DETR concerns the reform for a
passenger mileage allowance that can be given in addition to the
40p per mile allowance at the moment. At the moment, the Chancellor
is proposing 2p per mile. A number of companies have suggested
a rebalancing between those two and that there should be a higher
passenger mileage allowance and a reduction in the basic car mileage
allowance. The suggestion coming from companies was something
like a 4p a mile passenger allowance, knocking the basic allowance
down to 35-37p per mile. The argument there is that not only do
you therefore encourage the use of more fuel efficient vehicles;
you also encourage higher vehicle occupancy. It requires to hit
a certain threshold level with the passenger allowance before
that will encourage people to say, "I am going to this business
meeting. Would you like to come with me?" The argument is
that an extra 2p a mile does not do it but something like 4p or
5p a mile would. That is hot off the press information which has
only just been submitted to the Department.
3 See Carbon-Dioxide Emissions from Transport
in IEA Countries: Recent Lessons and Long-term Challenges, Transport