Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 260 - 279)

WEDNESDAY 1 NOVEMBER 2000

MR J HOOKHAM AND MR G DOSSETTER

Chairman

  260. There is also the currency differential as well.
  (Mr Hookham) Indeed; yes. Such is the difference in prices that that is not significant.

Mr Chope

  261. In evidence to us the Transport and General Workers' Union have said that interestingly the Freight Transport Association estimates that the current cost of a French haulier running a French domestic operation and a UK haulier running a UK domestic operation are broadly similar at 58 pence per kilometre compared with 55 pence per kilometre. However French hauliers pay over five pence per kilometre infrastructure costs. Is that correct? Are the costs for French hauliers running a French domestic operation broadly similar to those for a UK company?
  (Mr Hookham) There is some confusion here. The figures we developed for the Road Haulage Forum were particularly looking at the cost base of a UK domestic haulier doing business in the UK and the cost base of a French haulier and several other Member States' hauliers coming into this country and bidding for business on a cabotage basis. That was the principle case we were making. Therefore of course when a French haulier or any other continental haulier is in this country they do not pay infrastructure costs the way we do back home. That particular point does not arise because of course we do not charge motorway tolls or other charges in this country beyond VED for the use of infrastructure.

  262. Are you saying there is a thruppence comparison?
  (Mr Hookham) Yes; that was the difference at the time.

  263. Is that the situation today?
  (Mr Hookham) Exchange rates, movements in the price of fuel on the continent as well and there have been some changes in the cost base of French hauliers, particularly as they have come to terms with the 35-hour working week. I accept that the figures which we recalculated at the beginning of the year for the Road Haulage Forum are subject to these local variations. The indications are that that basic difference does exist and in particular is still there for some of the other EU Member States where they have not had the working time effect.

  264. Does the Post Office belong to the FTA?
  (Mr Hookham) Yes; it certainly does.

  265. They have given us evidence saying that as a direct result of high fuel costs all the operations they had on the continent are carried out by European hauliers even though they would like to be able to carry them out with their own in-house transport fleet, which you say would be much more expensive.
  (Mr Hookham) Absolutely because they would be British vehicles, taxed through VED at British rates, which are much higher than prevail on the continent. They would have access to the cheaper continental fuel once they crossed the water but other factors prevail. You were discussing the effect of the euro a little earlier. Of course interest rates and therefore depreciation policy on fleets are much different in euroland than they are in the UK because of higher interest rates which prevail here. There are all those sorts of other factors which have to be taken into account and indeed were taken into account in the analysis we did with the DETR and the Treasury and the Road Haulage Forum.
  (Mr Dossetter) There was a good example of the sort of advantage which the lower price of fuel has overseas when a depot in Fareham, Hampshire, about 12 months ago operated by Norbert Dentressangle closed. The business there, as I understand it, was normally British employees and British vehicles hauling for the French haulier. However, it was found eventually that because of our higher fuel prices here it was cheaper, more efficient, for the French operator to haul in direct from France rather than utilise the depot in Hampshire.
  (Mr Hookham) Similarly a lot of swop trailer business which used to come across the Channel, in other words trailers delivered, say, to Calais, towed onto the ferry and then collected by a British tractor unit this side of the Channel has now reverted to through journeys made by the continental haulier because of that lower cost base. Again more business lost to the UK.

Mr Morgan

  266. The AA recently published a survey that said that the increases in fuel prices had not had much effect on fuel consumption or vehicle growth. In terms of your own members, has their fuel consumption been affected by increases?
  (Mr Hookham) No, not by increases in taxes. This is a very important point which makes the industry's case different to the private motorist. You have very little option but to collect the goods from where they are produced and deliver them to where they are consumed, where they are required. Given the dispersion of industry and business around the country, there seems to me a counterproductive attitude that if what you are trying to do is make journey distances smaller by raising fuel taxes, making freight journeys more expensive, that seems to defeat the purpose of expanding in the regions and developing a rural economy if what you are trying to achieve is a concentration of activity. It is very important that the Committee understands both the haulier and indeed the manufacturer who own their own vehicles who comprise the bulk of FTA's members have little choice but to pay the high prices and duty rates on fuel because they have to go from where they produce goods to where their customers are and that is a given. You cannot really change that in response to fiscal policy.

  267. Has there been any increase in your members looking at other options such as the use of rail? Have you had any indication of that?
  (Mr Hookham) Indeed, a tremendous amount of interest in rail and this is for quite separate factors. A lot of the changes which have been brought into the railways as a result of privatisation have had an effect and the railways have reported separately quite dramatic increases in their business as a result of that. That is partly because they have their costs under control, they have become more astute at marketing their services to industry and more recently this year they have shown remarkable advances in the reliability of their services, which was another very important factor. The effect of high fuel prices on that has, I would suggest, been marginal because those factors I have just described, the reliability particularly, have been the things they have had to work on first and indeed have started to deliver on. It is quite separate to the factor of high fuel price.

  268. Surely the high fuel price must be a factor.
  (Mr Hookham) Maybe at the margin but we have to accept that the lorry is going to carry the vast majority of freight which does move around this country. We heard earlier on about the way in which UK demography and geography is different from the rest of the EU, so you cannot expect the same reliance on rail as perhaps occurs out there. I am sure there would be a lot of freight which does; indeed we encourage and hope that more freight moves to the railways. In theory they should be more reliable and less congested given what we expect to happen to the road network over the coming years. I do not think that trying to achieve a modal shift, as the Government wishes, is going to be achieved simply by making fuel more expensive. There are far more complex subtle factors which indeed are being addressed which will actually deliver on that particular objective.

  269. Is there any significant extent to which your members have "flagged out" their vehicles or registered them abroad?
  (Mr Hookham) No. All the evidence is that "flagging out" appeared superficially attractive, particularly after the 1999 budget when such a dramatic increase in diesel duty, 11.4 per cent, and some very high VED rates were announced, particularly for the upper weight vehicles, the 40-tonne vehicles, on paper the costs did look very attractive. However, I am not aware of any of our members who in any great numbers have actually made a committed effort to relocate their operations abroad and still try to run a domestic operation. Some international hauliers have, because if they are going to the continent anyway they do not have the problems; they just operate from the other end of the pipeline, if you like. Such are the legal complexities and such was the uncertainty about the status of operators' licences under that regime, a lot of the members we have spoken to have found it to be risky. They have no wish to attract the wrath of the traffic commissioners or indeed the law and therefore they have not committed to that at all. That is a very small number, if indeed any.
  (Mr Dossetter) Nonetheless it is attractive, bearing in mind the comparative rates of vehicle excise duty. If you do have an international operation, that does look at the larger vehicles, and of course international movements are primarily on 40-tonne vehicles, then there are substantial savings. The vehicle excise duty in the 1999 budget for a 40-tonner was £5,750. At that time that compared with a French price of around £450. If you are running a fleet of 10 or 15, if you are running a fleet of one vehicle, that is a very attractive option. Of course that figure came down in the budget this year to £3,950, still a long way distant from the French comparison, but flagging out is generally attractive on the basis of vehicle excise duty, not of course fuel duty because international operations take advantage of buying fuel overseas. It is a hanging offence for an international operator to buy a pint of diesel in the UK.

Mr Baldry

  270. Probably most of us would agree with your view that the vast bulk of goods is going to continue to move by lorry around the UK. If that is the case is not the exercise simply that any extra duties or costs which are imposed upon you are simply in due course going to get passed down to the eventual customer, they just get passed through the supply chain? That being the case, can you explain to the Committee why, if the costs effectively simply get passed down the line, we saw so many road hauliers protesting and expressing concerns about one particular cost, admittedly a high one, within your overall costs? Having heard your evidence this morning, what is difficult for the Committee to understand is what was the straw which broke the camel's back? What did cause this protest in the autumn? What was the configuration about which people were particularly expressing concerns?
  (Mr Hookham) May I just break that question down and come back to the question of why the costs are not being passed on? That is because at a time when the Government has deliberately had a policy of escalating fuel prices to industry and others it has been at a time when British industry otherwise has been happy to reduce its costs in order to stay competitive in a huge number of markets, which I am sure this Committee is familiar with, which have been conducted at a European level, if indeed not at a global level. This has resulted in a situation of some quite small businesses, medium-sized businesses needing to go to their customers and say, "I realise the situation you are in, where you are trying to reduce your costs to stay competitive on the global market, but I've had a real increase in the second most significant cost input that I have, my basic raw material that my trucks run on, my fuel. I am therefore going to ask for an increase in rates which is above inflation". It is quite probable that is the only input to that particular customer where there has been any talk of an increase above inflation. Given that the buyer of that transport is not entertaining above inflation increases on his other inputs of raw materials or in his other business services, he is saying he does not have the scope to increase his prices to absorb your extra costs, he is sorry but he is not paying it. If I may just take the story a stage further, what does the haulier do? They are small and medium businesses predominantly. If they do not have clauses in contracts which allow those prices to be added on automatically, do they just walk away from that business? Of course they do not. They look to try to absorb these costs as much as possible. They look to try to make the efficiencies both in the way they run their business and the way they run their trucks by which these real increases in fuel prices can be absorbed. To answer your second question, I think we got to the point where there was nothing left which could be done. A persistent policy of increasing fuel duty above inflation was literally the straw which broke the camel's back and not seeing any sign of an outcome to the very protracted discussions which we have had with Government in trying to make them aware of this situation and how perilous many businesses were becoming. I would suggest it was that sheer frustration which resulted in the sorts of action we saw by the hauliers and farmers.
  (Mr Dossetter) In the 1999 budget we did, in a public reaction to the Chancellors almost 12 per cent increase in diesel duty, point out that at that time the world oil price was relatively low, around $10 or $12 per barrel. We did warn that if the price went up on the world market there would be some trouble ahead. That of course is what happened in the period, in the 18 months between budget 1999 and summer 2000. The price of oil on the world market went up from $10 per barrel to $25, $30, over $30 per barrel. We had the toxic combination there of a Government's very high fuel duty policy combined with an increased oil price. Although, as we heard earlier, the price of the product itself is only 20 to 25 per cent of the total product price, the fact that went up as well as the Chancellor's policy, the two things coming together caused a number of explosions to happen.

Chairman

  271. You used the expression "the straw breaking the camel's back". It has been suggested to us that there was considerable overcapacity in the road haulage business; a figure of 20 per cent has been suggested by the DETR. Do you have any evidence of this overcapacity? Do you think that the straw breaking the camel's back might well result in a shakeout in the industry, a reorganisation of it, fewer people being involved? The smaller player is perhaps unrealistically still involved in an industry where there is not enough work for him to do.
  (Mr Hookham) If that were to happen in any other market, then we would let the market take its due course and the more efficient players would contain their costs and be able to compete still and those who could not would eventually disappear. What I find extraordinary is that given we may have a market here with alleged overcapacity—I cannot see it being any more oversupplied than any other market for that matter—how do you reconcile that with a Government policy deliberately to escalate the second most important cost in that business sector's input costs? That is what has been particularly frustrating for our members, that whilst they do attempt to make the efficiencies in their businesses that they need to do, their haulage businesses and in manufacturing industry as well, to reduce their transport costs, and of course to deliver on environmental objectives and improve the quality of transport and reduce emissions and so on, this is all coming at a time when Government fiscal policy is all pointing in the other direction to make it as difficult as possible.

  272. I am sorry, but have the numbers of your members fallen? Has the rate of recruitment gone down? Are there any examples of the businesses going bust as a consequence of the fuel increases?
  (Mr Hookham) We certainly have examples we can send to the Committee.

  273. I want figures, not just individual anecdotes. Do you have a significant percentage drop in your membership, do you have evidence on a sizeable basis either showing that nothing is happening or that there is a figure X percentage of a decrease? Until we can get that kind of figure, frankly it just does not wash. We understand the burdens are difficult. We understand it is harder to work at but what we do not understand is why people keep on doing it.
  (Mr Hookham) With respect, this is British entrepreneurship at its best.

  274. The Dunkirk spirit.
  (Mr Hookham) Quite possibly. It certainly seems to be putting those kinds of pressures on certain parts of the sector. It would be regrettable if we had to wait for many of these companies to fall off the cliff edge before we were to be convinced of the scale of the problem.

  275. Why should we as consumers pay more for the goods being delivered if there are too many players in the business? Why should we keep other businesses? It did not happen for the mineworkers or the textile workers in my constituency. Why should I put my hand in my pocket to support other people who frankly are perhaps no more economically useful than textile workers, the demand for whose goods no longer exists?
  (Mr Hookham) With great respect, I think that the difference there is that the Government is not deliberately increasing the price of those commodities which you describe and therefore forcing additional costs and additional frustrations into those sectors. Quite the reverse. It was putting money in to try to help them at the time. This is what frustrated a lot of our members because whereas the Government is actually trying to encourage them towards more environmentally responsible actions, that requires investment in their lorry fleets, investment in their driver skills, investment in the way in which they manage their business with the sort of opportunities information technology now offers. Whilst it is hoping and encouraging them to do that, with the other hand it is taking out vast quantities of cash through higher duty rates which is making it difficult for them to deliver on those objectives and actually making it difficult for them to stay in business at the same time. I am afraid at the moment there is largely anecdotal evidence of individual companies who have ceased trading, quite sizeable companies, quite sizeable names which we shall be happy to supply, but in terms of delivering robust statistics I sincerely hope we do not get to that stage. I hope that we are able to impress upon the Government just how dire the situation is and that action is taken before we do have robust statistics on the number of liquidations and bankruptcies. For us in our industry, that would obviously be too late.

  276. By the same token, if people get the goods they want delivered, why should we forego tax revenues if there is an overcapacity? At the moment it is suggested that there are too many lorries in Britain, there are too many people hanging in the transport industry, more than we require. I am being the devil's advocate here. We shrink the industry, we get it down to a level, then we get the environmental benefits of fewer lorries on the roads and we get other things as well. It may be that our industry is too big.
  (Mr Hookham) With respect, this is a peculiar way in which to conduct Government policy here. If indeed there is an issue to address of too many vehicles on the road, we want them to become more efficient, I should be only too happy to talk with relevant Government departments as to how we do that. As I indicated before, if we want to do that, if we want to bring in more efficient, less polluting vehicles, we need to put more money into the sector rather than keep taking it out. The best thing a haulier could do these days in terms of environmental efficiency is to buy a new vehicle. New vehicles today are so much cleaner than the ones they are currently operating which they may have bought seven, eight, nine years ago. The more newer, cleaner vehicles are introduced the quicker those environmental and efficiency objectives will be achieved. A lot of the case which the FTA has brought to the Government over recent years has been to ask them to confront the situation that at a time when they are asking for more money to be invested in the sector they have a deliberate policy of taking more money out. That cannot continue.

Helen Southworth

  277. Do you accept that if the whole picture of taxation is taken into account British competitiveness increases?
  (Mr Hookham) No, I do not. We endeavoured to make sure we covered all the relevant costs and taxes that goods vehicle operators on both sides of the Channel have to pay in the analysis of costs which we did in the Road Haulage Forum. It was not just taxes, it was features such as infrastructure tolls, different rates of depreciation because of different interest rates, different corporation tax levels and so on. We did try to do a whole costing review of the different businesses. I do not accept that even when you take into account these other costs, that goods vehicle operators in the UK are actually better off. The figures we submitted to the Department, which they seem to accept, suggest that there is still a higher cost base in this country.

Mr Morgan

  278. What assumptions did you make in relation to France about motorway usage? Certainly it is my impression that there are relatively few commercial vehicles on French motorways, at least on the tolled French motorways, because they just go to the routes nationales which are free?
  (Mr Hookham) The figures we used came from several sources. The two which appeared to be most reliable, in that they were independently sought and seemed to agree most, were from our counterpart organisations in France, who had obviously a close feel for the cost of their domestic members, and operators. Although that is certainly the case in some parts of France, it is self-evident from driving along the autoroutes that a lot of commercial vehicles do use and pay the tolls on the motorways. We did not start from that position. We simply asked the question of those bodies we thought would know.

Mr Chope

  279. Is your point that as a result of Government policy the number of foreign owned vehicles on our roads is increasing at the expense of British owned vehicles and British jobs? You described the environmental impact from this and the effect it has on existing British hauliers not being able to replace their capital equipment as soon as they would otherwise do so. Could you also comment on the impact on road safety? It is said that the advent of a lot of foreign lorries driving effectively on a different side of the road to the one they are traditionally accustomed to, with not so well maintained vehicles and all the rest of it, is having a detrimental effect upon road safety in this country.
  (Mr Hookham) There are two parts to that question. The first is that we should make it clear that the reason why there is such an increase in foreign vehicles coming into the country is simply because of the balance of trade at the current time and that is a function of exchange rates. I accept that there is no deliberate Government policy which has resulted in that. The consequences of large numbers of foreign vehicles being in this country is of significance because then the potential undercutting of prices is there. To deal with the second part of the question on safety, as I hope the Committee are aware, we have had for a very long time now, since the beginning of the 1970s, the operator licensing system which comes complete with very rigorous checks on the ways in which goods vehicles are maintained and inspected for roadworthiness. The points which have been made about the safety of foreign vehicles are simply because not as much is known about the condition of vehicles on the continent as we obviously know through that system in this country. Certainly the FTA is not alleging that standards are any lower, it is simply that we do not have the controls and checks which are in place on domestic vehicles by virtue of the O licence system and the work of the traffic commissioners that we have on foreign vehicles visiting, for example, the requirement to inspect the roadworthiness of a goods vehicle every six weeks. I do not know whether that is a requirement in any other Member State of the EU. It is certainly a requirement under most O licences which are issued in this country. We need to be clear as to what the uncertainties are in this and also the robustness of the system we have for goods vehicle licensing in this country, of which we are justly proud.


 
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