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


APPENDIX 11

Memorandum submitted by the Federation of Small Businesses

OVERVIEW

  There is no doubt that the high cost of fuel is the most pressing issue facing small businesses at the current time.

  In a recent survey responded to by 21,858 FSB member businesses, transport was one of the issues on which business owners were questioned, the results of which are reproduced below.

  In total, 95 per cent of respondents were dissatisfied with fuel costs (the highest dissatisfaction rating for any issue the survey covered) and 75 per cent were dissatisfied with road tax. Only 1 per cent and 5 per cent respectively were satisfied with both these issues.

  It should also be noted that the survey as carried out prior to the Dump the Pump campaign began in August 2000 and the fuel protests of September 2000.

Issue
Very dissatisfied
Dissatisfied
Neutral
Satisfied
Very satisfied
Public transport
27%
33%
28%
11%
0%
Road networks
22%
31%
24%
22%
1%
Fuel costs
80%
15%
3%
1%
0%
Road tax
46%
29%
20%
5%
0%
Workforce parking
17%
11%
49%
20%
3%
Customer parking
19%
14%
41%
22%
4%


  Source:  Barriers to Survival & Growth in UK Small Firms, October 2000. Survey carried out independently by the University of Strathclyde for the FSB.

HOW HIGH FUEL PRICES HURT THE SMALL BUSINESS SECTOR

  Small businesses accounting for 0-9 employees account for 95 per cent of all UK businesses. The average small business owner is a typical motorist.

  Every one pence per litre rise in diesel duty increases industry's transport bill by £120 million.

  UK motorists pay an average of 80.3p per litre for unleaded petrol with 60.8p going to the Treasury in tax. A typical 60 litre fill-up benefits the Exchequer to the tune of £36.47. The next most expensive petrol in the EU is in the Netherlands at 71.12p per litre, though Dutch motorists pay just 46.7p in tax. At these prices, a 60 litre fill up would be £5.49 cheaper than in the UK. At the other end of the scale, Spanish drivers pay the equivalent of 50.5p per litre fill up nets the Spanish government £17.67—less than half the tax UK motorists pay.

  Diesel users are even harder hit. Throughout Europe, diesel is taxed less heavily than unleaded petrol, due to its reduced "greenhouse gas" emissions. Yet British diesel users pay 60.8p in fuel duty and VAT for every 80.7p litre.

  Even French diesel users—the second worst off in terms of tax contribution paying 32p per 53.6p litre—pay just £19.23 in tax from a 60 litre fill up, compared to £36.50 tax in the UK.

  The table below outlines the price of fuel in other European countries.

Country
Unleaded ppl*
Of which tax
Diesel ppl
Of which tax
Annual revenue per
vehicle**
Transport investment***
Austria
57.8
34.7
46.9
25.4
£784
5th
Belgium
63.1
41.6
47.4
25.8
£630
7th
Denmark
61.9
44.7
53.6
31.6
£1,569
10th
France
67.1
46.7
50.8
32.1
£706
4th
Germany
61.9
42.6
48.5
29.6
£648
3rd
Italy
66.7
42.6
53.6
32.0
£495
6th
Netherlands
71.1
46.7
52.3
29.1
£966
8th
Spain
50.5
29.5
42.2
22.2
£408
1st
Sweden
68.3
45.8
54.7
31.9
£682
2nd
UK
80.3
60.8
80.7
60.8
£869
9th


  *ppl=pence per litre
  **1997, latest figures available
  ***Investment relative to GDP (1st=highest) 1994

  Sources: European Commission/Automobile Association

  Small businesses find it near impossible to absorb or pass on costs when fuel prices rise, unlike large companies, making them uncompetitive against large competitors and foreign companies.

Case Study

  A member of the FSB, a small company which runs a mail order service with around 15,000 UK customers, 250 trade accounts and exports to 12 countries distributes from its own premises.

  It uses a number of different carriers (eg Royal Mail) for UK and overseas deliveries and for larger overseas consignments a freight forwarder. All these companies have recently subjected a surcharge on the small business to cover the increased cost of fuel. One company has levied nearly 6 per cent in two months.

  The small company is unable to pass these costs on to customers as prices have to be set and this is normally done annually. The cost of changing prices every few months would be prohibitive in terms of printing costs and advising customers of the changes. In order to remain competitive the company has to absorb these costs but planning ahead is near impossible.

  According to the accountancy firm Chantrey Vellacott DFK, the windfall from rising oil prices means that for every $1 rise in the world oil price the Treasury nets £330 million. Chantrey Vellacott calculate that this means the Government could afford to cut fuel duty by 8p per litre, or 36p per gallon.

  The FSB believes that to make small business competitive there should be a cut of 8p duty per litre with immediate effect and a cut to bring the price of fuel by Christmas down to not higher than 50p per litre.

ARE OTHER EUROPEAN COUNTRIES REALLY BETTER OFF?

  The Government dismisses the high cost of fuel by saying that business taxes, overall, are higher in Europe and so the fuel prices must be seen within a wider context.

  But for the majority of small businesses, this argument is disingenuous. Most small businesses are unincorporated; ie they do not benefit from the low rates (10 per cent and 20 per cent) of corporation tax. These business owners pay tax at income tax rates, 22 per cent and 40 per cent. Only 1.2 million UK businesses—out of a total of five million businesses—are limited companies, most of these being large enterprises. A total of 200,000 small companies, a generous estimate, benefit from the 10 per cent rate of corporation tax.

  The Treasury estimates that fuel duty alone will bring in a total of £22.3 billion this year. But as well as high fuel duty and fuel prices, road tax (Vehicle Excise Duty) nets the Exchequer another £4.9 billion, bringing the sub-total to £27.2 billion.

  Insurance premium tax, now totalling 5 per cent on premiums, generates another £232.5 million from the private motorist alone.

  According to the Automobile Association, when UK drivers buy a new car or get it serviced, UK motorists pay more VAT at 17.5 per cent. This, according to the AA, brings the true total close to £36 billion.

  If this is divided among the driving population, the average British motorist pays far more than most European counterparts. The most recent data, gathered in 1997, showed that only Germany collected more cash from drivers than Britain—more than £26 million at today's exchange rates compared to £19 billion in the UK. But divided by numbers of vehicles on the road, German owners contributed £648 in tax compared to £869 in the UK, some £221 less than UK vehicle owners.

  The table on page 137 shows that only Denmark and the Netherlands pay more. But the closest competitors to UK small business, France and Germany, pay far less (£706 and £648 per annum respectively). Fuel duty has increased dramatically in recent years, so the competitive disadvantage is likely to have widened further.

THE HAULAGE INDUSTRY

  According to the Freight Transport Association, each 40 tonne truck in the UK pays £25,800 per year in Vehicle Excise Duty and fuel duty, representing 30 per cent of operating costs. In 1999-2000 the Government will take £4.7 billion from the road freight sector in fuel duty and VED.

  A French operator using cheaper continental fuel and with lower VED has a 14 per cent cost advantage over a UK counterpart. UK operators pay £5,264 more VED per 40 tonne vehicle than their French counterparts (£5,750 compared to £486). UK operators pay three times the EU average for VED and, for a 40 tonne gvw articulated vehicle, up to 12 times the rate of other countries.

  UK hauliers also have to pay for using continental road networks. For example, for a six axle truck the daily levy is approximately £4.18 per day.

  The FSB proposes a BRIT-disc to level the playing field between UK and foreign hauliers.

  The FSB has been calling for a substantial time for its proposed "BRIT-disc" scheme to level the playing field when it comes to the price of fuel.

  A common problem is that foreign hauliers fill up their tankers with petrol on the Continent, then travel over to the UK and complete their business without filling up at UK fuel stations. There were 760,000 foreign vehicle trips to the UK in the four quarters ending Q1 1999—a 57 per cent increase since 1996. Of the 420,000 goods vehicles in the UK, 80,000 are at or above 38 tonnes. Foreign vehicles on the UK's roads swell the number of trucks on the UK's roads at any one time by 9,000—one in 10 of the heaviest vehicles.

  The FSB believes foreign hauliers should have to pay for a BRIT-disc, which would allow them to operate in the UK. This would remove the competitive advantage that foreign hauliers have due to cheaper fuel abroad. Revenue received from BRIT-disc should go to the Treasury and subsequently cover a cut in fuel duty or road tax.

INDEPENDENT PETROL RETAILERS

  Small businesses in the independent petrol retailer sector are charged high prices for fuel. Often this price is more than the price at which large superstores are selling fuel to the consumer.

Case study

  Another FSB member, an independent retailer in Lincolnshire, is paying 80.07p per litre for supplies of four star unleaded petrol—2p more than the nearest superstore in Skegness which is selling it to the consumer at 77.9p (or 67.9p with a £40 spend in-store). The nearest superstores are 10 miles away.

  Independent retailers' meagre profit margins are being eroded. This situation obviously has implications not just for the competitiveness of independent petrol retailers, but for rural businesses and consumers alike.

  The FSB proposes that fuel suppliers should be forced to sign up to a maximum wholesale price for fuel sales to protect local independent retailers and rural motorists.

ROAD FUEL PRICE REGULATOR (RFPR)

  The FSB recommends that the Government examine the suggestion from Chantrey Vellacott for a "road fuel price regulator", which would allow fuel prices to be kept down in an economically credible way and at no cost to the Government.

  Essentially, the RFPR uses as its basis the fact that each dollar on the price of a barrel of crude oil raises the price of a litre of road fuel at the pump by two thirds of a penny. Simultaneously, each dollar on the price of a barrel of crude oil increases the Government's tax take from North Sea oil tax revenue sufficiently to fund a cut in the level of road fuel duty of around two thirds of a penny per litre.

  Under the RFPR, the price of crude oil would be monitored toward the end of each month to establish a bench mark price and the load of road fuel duty would be set for the following month with reference to that benchmark price.

  In view of the fact that the March 2000 Budget Statement assumed a price of crude oil of $22 per barrel, for the purposes of the public finances, this would be taken as the basis point. Assuming the RFPR started on 1 December 2000, then for every dollar per barrel that the crude oil price at the end of November exceeded $22, two thirds of a penny would be taken off road fuel duty as of 1 December 2000.

  In each subsequent month, the level of road fuel duty would fall by two thirds of a penny per litre for each subsequent downward movement of $1 in the oil price. In this way, the price of fuel at the pump would be smoothed out, contributing to economic stability.

October 2000


 
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