Memorandum submitted by the Transport
and General Workers' Union
The Transport and General Workers' Union represents
over 869,000 workers in all the main sectors of the economy. With
this wide area of representation we can speak with authority for
a range of different interest groups affected by fuel taxation.
We have specific sectors which deal with commercial road haulage,
fishermen, agricultural workers, as well as other sectors which
have members who are also drivers. Our paper starts by looking
at some of the elements, which have impacted on the price of motor
fuel and some of the knock on effects of these changes. Part 2
of our submission looks at some of the changes that have occurred
within oil and freight industries and how these have impacted
on the employees in these industries. However, the "fuel
crisis" was not just about fuel taxation it was a complex
interaction between underlying issues, which affected employees,
employers and consumers. Part 3 draws together the main points
of our submission.
In this part of our submission we will look
at some of the elements which have impacted on the price of motor
fuel prices and taxes and some of the "knock-on" effects
of these changes.
The real cost
of motor fuel to consumers, is higher than it has ever been: in
July of this year it was 10 per cent higher than its previous
peak reached in August 1981. It was 60 per cent higher than in
March 1991 and 29 per cent higher than in May 1997, when the Labour
Government was elected. However, the real price of crude oil is
still some 70 per cent lower than its peak in 1979.
PETROL PER LITRE JUNE 2000-AUGUST 2000
|Type of petrol
||June 2000||July 2000
|Ultra low sulphur diesel||82.6
Source: First ReleaseConsumer Price Indices,
August 2000, p 7.
2.1 High Crude Oil Prices
With crude oil prices at such high levels the oil companies
are reporting record profits from their upstream oil and gas production
divisions. Two years ago, the government was thwarted in its efforts
to get more money from the North Sea Oil fields because of the
collapse in crude oil prices. With the increase in the price of
oil the Government could consider bringing in higher taxation
on oil exploration and production. The oil companies benefited
in 1993 from a reduction in petroleum revenue tax from 75 per
cent to 50 per cent for existing fields and abolished for new
Table 1 gives a selected average price of petrol between
June 2000 and August 2000.
2.2 Stablilising Fuel Costs
To overcome this price volatility the Government could stabilise
the cost of fuel by setting a guaranteed retail price. If the
price of oil increased then the excise duty would be reduced.
Conversely, if the price of oil decreased then duty would increase
to maintain the price at the guaranteed price. The price guarantee
could be the price used in the last budget to estimate the revenue
from oil duty.
This would benefit industry by stabilising costs, but it
would also benefit the low paid who own cars, and who are reliant
on them to travel to work. The low paid, especially in rural areas,
may have no other alternative form of transport available to them.
Also the cost of living of the lowest income groups is most adversely
affected by tax increases, with the effect becoming smaller as
further you go up the income distribution.
We would also like to point out that in constant prices (1995=100)
between 1980 and 1999-2000 motoring costs have fallen from 107.0
to 103.9, while rail fares have increased from 76.2 to 103.2,
and local bus fares from 78.9 to 109.2see Annex 1. The
bus industry receives a fuel duty rebate, without that rebate
the increase would have been considerably higher. Also only 45
per cent of families' own cars, a figure that has remained constant
since 1969. It is the growth in two and three car owning families,
which has been responsible for the increase in car ownership.
Now, over one quarter of all households have access to more than
one car. The majority of families still rely on some form of public
transport as their main mode of travel.
Fuel taxes in the UK have risen to become the highest in
Europe, 20 per cent higher than in France. This increase is due
in part to the fuel duty escalator, which was introduced in 1993
and was justified on environmental grounds, but the principal
attraction may have been its ability to raise revenue painlessly.
From 1993 till 1999, road fuel duty was automatically increased
by a fixed percentage above inflation. The escalator was set at
3 per cent in March 1993 and was increased the following November
to 5 per cent. In 1997 the Government raised it to 6 per cent.
In the November 1999 Pre-Budget report the escalator was abolished,
with any future increases being decided on a Budget-by-Budget
In 1999-2000, fuel dutiesexcluding VAT raised
£22.3 billion, 6 per cent of total revenue and almost a quarter
of the sum raised by income tax. Tax accounts for 75 per cent
of the price of unleaded petrol.
EXCISE DUTY 2000-01 (APRIL 2000 PRICES)
|Type of fuel||Duty|
|Total duty as percentage of price|
|*Total tax as a percentage of price|
|Unleaded petrol (litre)||49
3.2 Collection of Fuel Duty
It has been claimed that the fuel supply system collapsed
so quickly, was partly due to the way the Government collects
duty on petrol. Excise duty is payable at the refinery gate so
many retailers have reduced the amount of petrol and diesel they
store as a cost saving measure. The Government could consider
changing the point where excise duty is collected from the refinery
gate to the point of sale. This would encourage retailers to maintain
4. PRICING CONCERNS
In the section we will look at some of our concerns about
the pricing of diesel as well as some of the affects this has
on the industries involved in the fuel crisis.
4.1 Price of Diesel
We are also concerned about the price of diesel, days before
the fuel crisis, hauliers in the North-East were turning their
backs on bunkered fuel suppliers because local forecourts were
offering cheaper diesel. The question is how can it be possible
to buy cheaper fuel at the forecourt rather than buying in bulk?
Therefore we would like to see the Competition Authority mount
an investigation into the pricing and supply of diesel. The Authority
could also examine the supply of diesel, because different forecourt
suppliers buy the same fuel from the same refinery, and the same
petrol could be branded under different names.
It is claimed that competition between the petrol retailers
and supermarkets has become so intense in recent years, that some
companies such as Shell report they make almost no profit from
the sale of petrol in the UK. They rely instead on convenience
stores to support their service station network. BP says it hopes
to make 1p in profit from every litre of petrol sold, compared
with the 62.5p a litre it collects for the government.
4.3 Harmonised European Fuel Tax
Fuel taxes in the UK have soared to become the highest in
Europe, 20 per cent higher than in France. The UK duty is over
twice that of Greece. There is a case for arguing to bring in
an EU wide fuel duty to level the playing field on duty. Especially
as a single market in road haulage has been created in the EUsee
4.8any solution we believe will require a pan-European
EUROPEAN ROAD FUEL DUTY PLUS VAT, PENCE PER LITRE, JUNE
Source: HM Customs and Excise Annual Report (1998-99).
4.4 A Combination Effect
It is the combination of high and rising taxes with the tripling
of the price of crude oil since late 1998 which has done the damage.
During this year there has been substantial variation in the price
of oil. Table 4 gives an example of the volatility of the market.
Since May 1997 there has been a 42 per cent nominal increase in
the price of unleaded petrol, three-fifths of it explained by
|Latest price||Change on week
||Year ago||2000 High
Source: Financial Times 17 September 2000, p21 * October.
4.5 Help for Hauliers
In a specific move to help hauliers we would agree to the
introduction of a "blue" diesel scheme. Where they pay
a lower rate of duty similar to bus operators, who receive a fuel
duty rebate. We would also like to see such a scheme applied to
taxis as well.
4.6 The Farmers
Farmers are not penalised by high taxes on fuel. They pay
3p a litre on "red diesel", a sixteenth of the rate
paid by everybody else. Their problems would appear to be more
to do with a drop in income than the price of diesel, which particularly
affects small farmers.
4.7 The Fishing Fleet
We believe that the case for the fishing fleet is much stronger
than the case for the farmers. Although fish prices are down 20
per cent this year the industry is uniquely exposed because it
cannot pass on the rising costs as most fish is sold by auction.
It is claimed that the supply of fuel for the industry is
very competitive, and it now accounts for over 40 per cent of
gross income, although the fishermen do not pay tax or duty on
diesel fuel. However, there would appear to be a discrepancy between
the rise in crude oil and the rise in marine diesel, with marine
diesel rising faster than crude oil. The competition authorities
should investigate the discrepancy between the prices of crude
oil and marine diesel. It is this cost, together with a scarcity
of fish and shellfish, that has resulted in a serious economic
crisis, within the fishing industry. They are also suffering from
anti-competition behaviour, three EU countries are helping their
fishermen, and another three were on the point of doing so.
The fishermen's protest was in part about high fuel costs
and they are looking for some sort of fuel concession. We understand
that the Government accepts that there is distortion of competition,
and that fishing is particularly vulnerable to fuel price rises.
Since July 1998 the transport of goods in a country by a
vehicle not registered in that country has been in full operation
within the European Union (EU). This is known as cabotage and
is part of a long-term plan to harmonise transport throughout
the EU. According to the UK employers it has "created nothing
but grief for UK operators because their operating costs are higher
than in most other EU countries". (Phillips 2000:2)
There is a double-edge effect with cabotage. Foreign operators
can come into the UK and move goods cheaper than resident hauliers.
According to the Road Haulage Association a European based truck
can quite legally, bring 1,260 litres of diesel into the UK. This
amount of diesel will run a lorry for 2,300 miles at an average
6 mpg. Therefore, that European operator has a commercial advantage
over his UK based competitor of just under 25 pence per mile.
At the same time UK hauliers find it difficult to compete in continental
Europe. They pay tolls in France as well as Vehicle Excise Duty
in the UK. However, it must not be forgotten that it is possible
for UK hauliers returning from continental Europe to fill up with
cheaper diesel in France and Belgium. Schemes operate where British
hauliers can use the Comos card to buy cheaper French/Belgium
fuel and get up to 30 days' free credit before being billed back
in Britain. In March the price for a litre of diesel, including
VAT, cost 50.80p in France, 47.79p in Germany and 44.43p in Belgium
compared to the British price of 78.90p.
The strong pound also goes against the interest of the road
hauliers as it affects both costsespecially oil
and the rate of exchange. From Table 5 it can be seen that between
1998 and 2000 the UK fell from being ranked 3 in 1998 to 13 in
EUROPEAN DIESEL PRICES AT MID APRIL EXCLUDING TAX AND
DUTY PENCE PER LITRE1
|UK Rank in EU||3
Source: Digest of UK Energy Statistics 2000, p 236.
1 Prices concerted to pounds sterling using mid April
4.9 Comparative Costs
Table 6 gives the comparative costs of operating an EU five
axle, 2+3, 40 tonne lorry with an annual mileage 60,000 consuming
7.1 mpg. These costs are indicative, rather than definitive.
|Road Tolls|| ||
Source: Phillips 2000: 3.
UK (Dom)1 gives the Motor Transport cost for UK hauliers
on domestic work using Freight Transport Association (FTA) bunkered
fuel prices (62.8 a litre), and are used as the benchmark for
According to data presented to the Road Haulage Forum (RHF),
in April this year, the costs of French trucks operating in the
UK were roughly 5 per cent lower (and Dutch trucks, 10 per cent
lower) than those of British ones. The real question is how much
of the internal haulage market is provided by foreign trucks.
According to a survey by the RHF it is 0.06 per cent.
PERCENTAGE DIFFERENCE IN COSTS
We also pointed out in our Working for your rights in
Transport document p 45 that "Interestingly, the Freight
Transport Association (FTA) 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
58p/km compared to 55p/km. However French hauliers pay 5.01p/km
In this part of our submission we will look at some of the
changes that have occurred within oil and freight industries and
how these have impacted on the employees in these industries.
However the "fuel crisis" was not just about fuel taxation
it was a complex interaction between underlying issues, which
effected enployees, employers and consumers.
5. THE OIL
The modern reality of the oil industry is that it is risk
adverse, to a degree that many outsiders would find surprising.
Once a serious health and safety issue is raised, line managers
have little or no discretion to anything other than pull tankers
off the road.
5.1 Changing Condition of Employment
In recent years cost cutting has caused the companies to
pare back the number of drivers and outsource many of the logistic
functions. As well as this paring back of drivers there has been
a worsening of the terms and conditions of employment. Underlying
some of the reluctance of drivers to not cross so-called picket
lines was their own experience of worsening employment conditions
over the past 10 years. Some of our drivers have had their employment
contacts transferred to four different employers in the last six
5.2 Driving should be an In House Function
We believe that in the long-term the oil companies should
as a matter of policy return the oil delivery function to an in
house function. In the short to medium term we believe that Modern
Minimum Standards in the oil delivery industry should be introduced,
applicable to all the oil companies and their contractors.
Shift patterns within the industry should be more "family
friendly" and working hours should be based on a maximum
working week of 48 hours, with at least two free weekends in four.
Tanker driver routes are in the main short haul, so the arguments
used in other sectors of transport industry for longer hours do
We were very concerned about the intimidation experienced
by our members during the so-called fuel duty crisis. We recognise
that the issue of intimidation is not strictly part of the terms
of the reference for the Committee but we have attached a copy
of our report as Annex 2 to this submission for the Committee's
Since the middle of the twentieth century, the growth in
freight transport has followed the upward trend of real Gross
Domestic Product. However, the demand for freight is closely related
to the economy's performance at any given time.
6.1 Changing Demands
However, it is not just economic growth, but it also changes
in the way business is conducted, and the changing expectation
of consumers, which have impacted on the freight industry. Increasingly
consumers pull production through the supply chain, rather than
the manufacturing process regulating the demand for transport.
This is called the Efficient Consumer Response (ECR) which has
recently been developed in response to the changing demands of
the consumers. Today, when an item is sold, its replacement is
ordered. According to Lex Transfleet (2000:24) "The increasing
efficiency of the freight industry has allowed this significant
change to occur and thus ensure stock levels are kept to a minimum."
ECR means of just-in-time delivery involve developing high standards
of product quality and innovative services in freight to meet
the increasing expectations of British business and consumers.
The industry now offers a wider range of goods and services,
and the economic changes in Britain have been accompanied by real
growth in speed and reliability of distribution, characterised
by the notion of just-in-time delivery systems. The arrival of
just-in-time expectations has placed new demands on the efficiency
of freight in Britain. Shops and businesses used to offer very
basic products and services on behalf of the manufacturer. It
has now evolved that some shops are open 24 hours a day, seven
days a week, which has changed and increased the pattern of demand.
This has been a quiet revolution, which has taken place over
the last five to 10 years. New technology and more information
have allowed corporations to hold less inventory, and move what
they have faster through the system. Even the humble warehouse
has become a high-technology "hub", "distribution
centre" or "strategic stocking location".
Many suppliers delay finalising their order until the last
moment. This minimises inventory and maximises the ability to
respond to the customer's order.
6.2 Shocks to the Supply Chain
Companies are under intense pressure from the supply chain,
and because they respond quickly other firms in the supply chain
do not feel the need to build up their inventory. This creates
a major threat to these new, lean, supply chains, the unexpected.
As Brown (2000) has eloquently described the situation "But
if the lorries do not roll, the economy starts to grind to a halt
very quickly". The logistical efficiency of the UK's supply
chain makes it vulnerable to disruption. The UK economy is now
so complex that any disruption in one area has immediate knock-on
effects elsewhere. Failures in one supply chain are quickly causing
failures in others.
When there is a predictable hiatus, such as Christmas, the
Millennium, or bad weather in winter, there is a degree of forecasting
availablethe fuel blockade was totally unforeseen. Motorway
service stations are required to keep their tanks topped up, but
most retail sites operate with just enough stocks to meet demand.
Some petrol companies keep the storage tanks full at sites that
they own and operate, but individual dealers make their own decisions.
Motorway service stations are required to keep their tanks
topped up, but most retail sites operate with just enough stocks
to meet demand. Some petrol companies keep the storage tanks full
at sites that they own and operate, but individual dealers make
their own decisions. The fuel crisis showed that panic buying
could empty service stations within 24 hours. But even if all
available fuel storage was used the country might have an additional
day or two before supplies were exhausted. In the "fuel crisis"
we only avoided a complete shutdown because the protestors suspended
their actions before public support began to ebb away.
The system works provided nothing goes wrong, but there is
no slack in the system. Shocks to the supply chain are transmitted
backwards and forwards more quickly than in the past. Companies
may react faster, but shocks to the system now have wider ramifications.
All members of the supply chain and inter-linked supply chains
are extremely vulnerable. Many factories carry enough parts to
maintain production for only a day or two. Retailersespecially
in the food sectoruse fleets of trucks to replenish their
stores several times a day.
Overall the system has led to enormous cost savings. Retailers
use former warehouse space for retail shelving. Manufacturers
have less cash tied up in stocks, releasing funds and factory
space for productive investment. According to Hill (2000) "Nobody
disputes the benefits of streamlining inventory management. Alan
Greenspan, Chairman of the Federal Reserve, has identified it
as one ingredient of productivity improvements in the US".
The problem for companies is that holding more stocks is
enormously costly. According to Brown (2000) "Research at
Cranfield carried out in advance of last year's millennium bug
scare found that holding just 12.5 per cent extra stock would
push the manufacturing sector into recession, wiping out growth
and causing a contraction of 0.4 per cent. Holding 20 per cent
extra stock would cause a contraction of 3.3 per cent. Wholesalers
fare even worse, contracting by between 2.7 per cent and 7.4 per
cent. Retailers would continue growing, but at a much lower rate.
But even a 20 per cent increase in stocks would be little
help to companies facing a week or more of disruption, with stocks
for only a couple of days. For most businesses, doubling or trebling
stocks is out of the question. They have got so much benefit that
they will never go back to previous stock holding patterns.
One of the surprising elements of the "fuel crisis"
was the realisation that the road haulage industry holds much
lower fuel stocks than it used to, even though 90 per cent of
Britain's goods deliveries are made by road. "Simon Chapman
the Freight Transport Association's economist says many smaller
companies no longer hold their own bunker stocks because thin
margins have forced them to cut overheads by relying on bunkers
owned by the big oil companies and independents such as Securicor
Fuelserve. As a result, the industry typically holds only two
to five days stock at any one time". (Brown 2000)
In this lean supply chain culture it is the smaller hauliers
who are being squeezed by the new technology. The Internet, combined
with other developments in logistics systems, can be used to deliver
huge cost savings. Better supply chain management allows a more
efficient use of resources, but in the main these benefits are
only accessible to the larger operators.
6.3 Impact on Employees
With the coming of the supply chain culture there are people
who have been adversely affected, mainly the employees. Increasingly
our members are being asked to work longer hours, as well as more
"family unfriendly" shifts while the rhetoric if for
"family friendly" policies. There is a dichotomy, between
the seven day, 24 hour consumer lead culture, and "family
friendly" policies, and this needs to be urgently addressed.
This part of the report pulls together the main themes of
our submission to the Trade and Industry Committee.
In our submission we have tried to highlight some of the
issues brought about by the current levels of motor fuel taxation
on the competitiveness of UK enterprises, and the impact that
the supply chain has had on employees in the freight industry.
7.1 Main Points
The Government could consider bringing in higher taxation
on oil exploration and production.
To overcome the price volatility of fuel the Government could
stabilise the cost of fuel by setting a guaranteed price.
The Government to change the point where excise duty is collected
from the refinery gate to the point of sale.
The competition authorities should investigate the supply
and pricing of diesel for the road haulage and fishing industries,
as well as the supply and pricing of retail petrol.
The Government should introduce a "blue" diesel
scheme for hauliers and taxis.
The Government should raise with the European Commission
the introduction of a EU wide fuel dutyespecially for the
road haulage industry.
With the coming of the supply chain culture employees are
being asked to work longer hours and more "family unfriendly"
shifts. There should be an investigation into the impact of these
"family unfriendly" shifts on family life.
The TGWU aims to improve the quality of the terms and conditions
of employment in the oil delivery industry by:
Negotiating the introduction of Modern Minimum
Standards into the oil delivery industry in the short to medium
term. In the long-term, driving should be returned to an in-house
Negotiating shift patterns within the oil delivery
industry which should be more "family friendly" and
the working week should be based on a 48 hour maximum.
Brown, Kevin (2000) "Manufacturers prop up the dominoes:
The fuel crisis has exposed how dependent British industry has
become on "just-in-time" systems. Financial Times,
22 September, 16.
Hill, Andrew (2000) "The quite supply-chain Revolution"
Financial Times, 9 Oct p18.
Lex Transport and the Road Haulage Association (2000) "The
Lex Transfleet Report on Freight" Coventry: Lex Transport
and the Road Haulage Association.
The price relative to the all-items retail price index. Back