Select Committee on Trade and Industry Appendices to the Minutes of Evidence


Memorandum submitted by The Post Office


  The Post Office has one of the largest transport networks in the UK, therefore Motor Fuel Taxation is an issue which impacts enormously on our business. Our comments are not of a confidential nature.

  For many years, The Post Office, like all other businesses, has been subject to increasing fuel prices. This has been due primarily to the introduction of the Fuel Duty Escalator by the last Conservative Government as a policy tool designed to increase the cost of fuel annually above the rate of inflation. Whilst we recognise the environmental aims behind this policy decision, the increasing cost of fuel has been aggravated by a steady increase in the price of oil on the world market, cumulating in the recent 10 year highs. The net effect of this has been a growing dissatisfaction with the cost of fuel, which was demonstrated by the fuel blockages witnessed across the UK and throughout Europe during September.

  Against a backdrop of increased media attention to the effects of high fuel prices, this response deals with the actual impact on The Post Office, based on facts and informed views. Indeed, we feel that as an organisation The Post Office is uniquely placed to comment on the impact of fuel prices, based on the following key facts:

    —  a total road fleet of 36,000 vehicles;

    —  over 640 million road miles per annum;

    —  some 150 million litres consumed annually;

    —  91 flights each night, spanning 26 airports;

    —  59 dedicated trains operating daily.

  These figures underline the fact that The Post Office's transport operation is one of the largest in the UK, and probably throughout Europe, putting the organisation in a position to offer informed views on all transport related issues.


  There is little doubt the transport industry operating from bases in the UK is disadvantaged compared with hauliers based on the continent. Fuel taxation is considerably higher in the UK than in all other European countries, and the net result of this is that European based operators are able to fill their tanks in mainland Europe at a lower rate than their UK counterparts. Therefore, when these European hauliers head to the UK, they are able to under-cut UK based hauliers as a direct result of their lower operating costs. This distortion in fuel duty across the European Union is resulting in UK hauliers losing work to EU based companies, and the situation is aggravated by the current strength of the pound, which is bringing increasing quantities of imported goods into the country. This net flow of goods inward is increasing the number of EU hauliers entering the country, and these hauliers are returning with "back loads" at lower rates than can be achieved by UK based operators.

  As a direct result of the increased competition from Europe, there is strong evidence that many transport companies are struggling to survive, and many are going out of business. So great is the threat, that several UK hauliers are now embarking on a policy of "flagging out". This involves registering the business on the continent and operating trucks out of that country. Apart from the fuel differentiation, hauliers who have "flagged out" also enjoy significantly cheaper levels of Vehicle Excise Duty (VED) and, since the trucks have to return to their country of registration only a limited number of times per year, they are free to head to the UK and compete for business with lower overheads and consequent ability to undercut domestic hauliers.

  Whilst The Post Office has not yet taken the opportunity to "flag out" any of its fleet, we have been significantly affected by the economic advantages to firms operating a fleet in mainland Europe. For example, as The Post Office has expanded across Europe through a series of mergers and acquisitions, we have necessarily increased our transport links between the UK and various European countries. However, as a direct result of high fuel costs in the UK, all of these transport legs are currently operated by European hauliers, who are able to offer lower rates than either UK companies or even what could be achieved by our in-house transport fleet.

  Recognising the huge cost advantages to be derived from sourcing fuel with lower percentage of duty, we currently take every opportunity to source fuel from outside the UK. Perhaps the best example of this is our instruction for Northern Ireland based vehicles to draw fuel in Eire, despite the fact that this often means vehicles doing considerable extra mileage. Furthermore, for the trunk services which we operate into Ireland, we request that drivers fill their tanks before commencing the return journey, and we also request Transport Managers rotate their fleet to ensure that as many vehicles as possible have the opportunity to draw fuel in Ireland in any given week.

  We consider the high cost of fuel to be such a significant burden on the overall profitability of our organisation that we invest considerable amounts, in terms of both capital costs and management time, in the evaluation of alternative fuels and the adoption of other fuel saving measures. For example, we have been actively involved in the evaluation of LPG and CNG fuelled vehicles, and have introduced a comprehensive defensive driving training programme. Furthermore, we have extensively introduced the use of double-deck trailers, and have embarked on an ongoing long term evaluation of "piggyback" inter-modal transport.

  However, despite our best efforts at evaluating and adopting alternative transport modes, we are ultimately undermined by the lack of viable alternatives. Whilst The Post Office currently makes extensive operational use of rail services on a daily basis, we feel that we are unable to increase our use of rail because of ongoing reliability problems and limitations of rail access in certain geographical areas. This lack of a viable alternative has meant that we have to rely on a huge road-based transport operation, and thereby pay the high fuel costs.

  Given that no business can continue to absorb an increasing overhead as a result of rising fuel costs, this additional financial burden has been passed directly onto our customers. Bearing in mind that all other UK operators are in the same situation, this general increase in costs must be leading to inflationary pressures in the economy, thus further damaging the competitiveness of UK companies who are already struggling to compete on the European and global stage due to the high value of the pound.

  Allied to these economic pressures, we are also concerned about the safety of road transport within the UK. As a direct result of lower fuel duty across Europe, this submission has already noted how more and more European based operators are heading to the UK. However, despite the strict regulations and high professional standards which apply to UK regulated companies, we are concerned about the safety of some of the European registered trucks which run on UK roads. This is particularly the case with vehicles from eastern European countries and those from the former Soviet Union.

  We also currently take advantage of the lower levels of VED which are offered for "green trucks", ie those vehicles which meet the latest Euro III emissions standards. We consider such financial incentives to be an effective tool to reward responsible operators. We would discourage any move to reduce fuel duty and consequently increase the rate of VED.


  Despite all the concerns which have been raised in this paper, we do recognise the environmental benefits to be achieved from a reduction in the consumption of fossil fuels. However, given that congestion on our roads continues to grow at a steady rate, and that a gridlock situation is predicted in the future unless demand patterns for transport are changed, it would appear that increasing the price of fuel in isolation has failed to deliver any of the environmental benefits which the Government desires. This suggests that the average motorist has a high degree of price elasticity when it comes to car use and is prepared to pay spiralling costs for the benefit of using his car. Given that the number of LGV vehicles has actually fallen in recent years, whilst the level of car ownership has continued to increase, we suggest that a differentiation needs to be made between car users and the haulage industry.

  As far as car users are concerned, the Government should continue to pursue its aim of reducing car usage, which can be achieved by fuel duty, urban access charging and road tolling, whilst at the same time investing in the provision of viable alternatives such as Light Rapid Transit schemes, bus priority measures, and upgrades of key rail arteries. However, there must be a realisation that road freight transport is crucial to the functioning of the interdependent society which exists today. The point of demand for nearly all goods are geographically dispersed from the point of production, and no other mode of transport, other than road, can achieve the degree of market penetration demanded by the retail multiples, high street chains and other outlets which need to be frequently served in our consumer dominated society.

  With this in mind, we advocate the introduction of an essential user rebate for LGV vehicles, particularly with fuel duty tax. Whilst recognising that a general exemption may not be appropriate, we would welcome an essential user rebate as an integral part of an integrated transport strategy which aims to exploit the advantages of individual modes, whilst recognising that road transport will almost inevitably be involved in any end-to-end logistical solution.

October 2000

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 15 March 2001