Examination of Witnesses (Questions 424
WEDNESDAY 14 FEBRUARY 2001
HAIN, MP AND
424. Good morning, gentlemen. Can I welcome
you to the Committee. You have been before us, Mr Timms; Mr Hain,
can we welcome you as a newcomer to the DTI. We are shamefaced
almostnot quitein having you here so early but we
realise that you are now, after three weeks in the job, well-briefed
and able to take up our simple questions. In some ways this is
a session which some people might have suggested we should have
had before Christmas but on the other hand, since then, fuel prices
have fallen so that adds yet another dimension to our activity.
The memorandum that you have sent us makes the point that, excluding
the transport industry, spend on fuel amounts to 1.3 per cent
of the value of output in the productive industries and, for manufacturing,
it comes to about 1 per cent. Does this mean that road fuel costs
at 1 per cent for manufacturing are insignificant, Mr Hain?
(Mr Hain) I do not think they are insignificant but
I think it puts it into perspective. If you look at the wider
picture, for example, you see that iron and steel and pharmaceuticals
is around 0.5 per cent and motor vehicle manufacturing is between
0.3 and 0.5 per cent. On the other hand if you go to coal, for
example, it goes up to 6 to 7 per cent, so I would not say it
is insignificant but I think it helps us to get a better sense
of proportion as to what the direct impact on overall manufacturing
costs is and allows us to compare with wider issues of competitiveness
including productivity, investment, skills levels and so on, which
the British economy really needs to be measured by.
425. Maybe I am asking you an easy question
to start with but do you think, therefore, that this is an example
of the problem which we have had in relation to fuel costs and
motoring and transport in generalthat there are a number
of other costs associated with transportation, either on a personal
or an industrial sense, that do not relate exclusively to fuel?
This seemed to be one of the problems that the government had
in September/October last year?
(Mr Hain) I think that is a very fair point. If you
look at the CBI's figures to you where they said that transport
costs represent between 5 and 10 per cent of total business cost,
that is a range we would agree with, but it makes a comparison
which includes the cost of keeping the vehicles on the roads,
the cost of labour, the associated cost of physically moving goods,
and if you just identify fuel for these purposes you find it comes
much lower to the kind of figures which you quoted to us which
we supplied to youall industry 1.3 per cent and manufacturing
only 1 per cent. If I could make one other point, if that would
be helpful to the Committee, if you look within both manufacturing
and the wider economy, you find that for the goods that are traded
such as, for example, the higher value, more specialised, less
bulky goods, road fuel costs are lower in relation to the value
of output than goods such as coal, for example, which is largely
not tradedcertainly not going outwards. Others have got
high costs, dairy products, for example, at 10 per cent, so I
think that enables us to identify the fuel issue again with a
sense of proportion, not discounting the impact on the ordinary
motorist or road haulier, where it feels very high when you fill
your tank up, as you and I would confirm.
426. I do not wish to suggest for a moment,
at this stage at least, that you are being highly selective in
your choice of statistics. Do you think you could provide us after
the session today with the spread of sectors and how they impact?
You have mentioned dairy, and the significance of coal. Could
you give us figures, not necessarily at the moment but by way
of memorandum, and information on the other sectors and the ones
which are higher than coal or which are more dependent on fuel
and hydrocarbons in the way the dairy industry is?
(Mr Hain) I would be happy to do that. Just to give
you an indication, fishing is quite high at 6 per cent as compared
with cements; lime and plaster is 5 per cent. I will give you
the full figures very happily.
427. I think that is very important. The memorandum
submitted by the Treasury and DTI simply gives us overall figuresa
bit of input/output analysis and we get 1.3 per cent and 1 per
cent and that does not tell us anything at all about the impact
of the individual sectors. I think that information is very important
because it is not just the importance of fuel costs in total costs
of production; it is the impact of changes in fuel costs whether
it is due to oil prices or taxation or whatever. I wonder what
work is being done on analysing the effects of these changes in
fuel prices which are the immediate cause for concern.
(Mr Hain) That is a fair point and I gave as an example
the figure of coal. The change from 1998 to 2000 in the relevant
comparison figures is about a 60 per cent increase. If you go
down to a different one, say, inorganic chemicals or dairy products
for that matter, there has been a roughly 21-22 per cent increase,
so I think the change is an important point. In addition, however,
we need to keep focused on where are the rapidly growing and increasingly
important sectors of industry in the economy. If you take, for
example, computers and office machinery, they come out at just
0.1-0.2 per cent.
428. How many billions is the 1.3 per cent that
is referred to, by the way? In paragraph 6 in the memorandum we
have got the 1.3 per cent and 1 per cent but no figures. In paragraph
5, which is relating to what the industry spends on transport
fuels, we have got 15.7 billion. Presumably the 1.3 per cent we
are talking about here in terms of the road fuels costs as a proportion
of output in the productive industry is likely to be several billion
pounds, presumably 10-11 billion?
(Mr Hain) I think it is of that order but, if you
like, what I will do is confirm that figure to you when I write.
429. Can I ask about small businesses? Obviously
the government is doing a lot to promote small business development.
In the memorandum submitted to us by the Federation of Small Businesses,
their opening sentence is, "there is no doubt that the high
cost of fuel is the most pressing issue facing small businesses
at the current time". Do you agree that the impact of road
fuel costs may be considerable?
(Mr Hain) Yes but I think, again, that it needs to
be kept in the same kind of proportion that I tried to identify
earlier. When you or I fill up our petrol tanks, as I do every
week to go home to Neath, it feels a lot, and I think that small
businesses are operating much closer to the level at which you
or I might operate, especially if they are very small. It feels
very big, therefore, and I would not deny that it has had a large
impact but, again, it depends whether they are in the export market,
in which case the indication that I have given is that it is not
making as big an impact as you might suppose for the traded sector,
of which SMEs are an important part. I think we just need to look
at this in the round.
430. Can I finally ask an obvious question about
road haulage? Hauliers repeatedly say that they are losing significant
amounts of business in the UK due to the UK's relatively high
levels of fuel taxation. How do you respond to that argument?
(Mr Hain) I was very interested in the evidence that
the CBI gave to your Committee in which they appeared to say that
that was not the case. I think the quote they gave was that their
understanding is that their members are still predominantly using
UK hauliers. I guess, in the absence of any contradictory evidence,
that is quite an important bit of information from the CBI. I
do not have any information to contradict that; there has been
a whole lot of analysis done to show that the overall tax burden
on road hauliers in Britain, if you take it across the board and
not simply look at fuel duties, is in fact lower than it is on
431. You say that you have not seen any evidence
to contradict these statements. Have you looked at the evidence
that has been given to this Committee? In particular on that last
point, have you looked at the evidence from the Post Office that
was given in a memorandum? Perhaps I can remind you of it. It
says, "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".
Did you read that evidence? If so, is that not the most compelling
which shows that what you have just said is a load of rubbish?
(Mr Hain) I was quoting the CBI. If you are contradicting
the CBI which has, as I understand it, the Post Office in its
membership, then that is perhaps a matter you ought to take up
with the CBI but I am not denying that the Post Office, which
has a huge distribution system moving tens of millions of letters
and parcels every day, has not been affected by the massive world-wide
increase in oil pricesof course it has. I am simply saying
that the CBI's evidence, and I have not seen anything to contradict
it aside from the evidence you have quite properly put to me from
the Post Office, indicates that this has had less of an impact
than might have been supposed.
432. But it is not just the world-wide increase
in the price of oil; it is the fact that the fuel costs in this
country have gone up by about 50 per cent since the last general
election and they have gone up in this country a lot more than
on the continent. To give another specific example which I am
sure you must be familiar with, we had evidence from CORUS, who
said that they spend £100 million a year on UK road transport.
We estimate that the impact of these extra fuel taxes compared
to what will be paid if located in continental Europe is some
£10 million a year, which is very significant. It is some
£1,500 for every person they are making redundant as a result
of their lack of competitiveness, yet you have come along to this
Committee in a very complacent mode, if I may say so, when there
is a crisis in manufacturing which is being exacerbated by this
government's policy of having the highest fuel taxes in Europe.
(Mr Hain) I am not at all complacent. I will ask Stephen
to add anything he wishes on this matter but I also quoted to
you the fact that, for iron and steel, the equivalent figure of
fuel costs compared with overall output is 0.5 per cent. I do
not think CORUS have suggested that their redundancies are due
to rising petrol or diesel prices.
433. They suggested it as one of the factors.
(Mr Hain) But I think you would accept that, given
the facts show that it is 0.5 per cent of their overall output,
it has to be seen against a background of other matters including
the exchange rate and including the world glut in steel and so
on, so I accept the point that you wish to make from a party political
point of view but I do not agree at all that this is a complacent
statement about manufacturing. It is simply saying that we need
to put it into perspective and I think the facts speak for themselves.
434. You accept the £10 million extra for
CORUS? You accept the extra burden on CORUS compared with what
it would be if they operated in continental Europe, just on this
issue of fuel? That is a significant sum of money for any business,
particularly one under a tremendous amount of pressure?
(Mr Hain) Of course I accept that CORUS have given
these figures, and I am not in a position to dispute it, but you
need to look at the £10 million against the 0.5 per cent
of their total output and ask how significant a factor that was
in both the redundancies they announced the other week and in
their overall competitive position. I suggest that, when you do
that, it has to be put in proportion. That is the point I am making.
(Mr Timms) I would add to that, of course, that you
need to look at the other taxes that companies in the UK pay,
for example, the fact that we have the lowest rate of corporation
tax amongst major competitor countries. The overall point, therefore,
that Peter rightly made is that the overall tax burden for hauliers
and others in the UK but hauliers in particular is not very significantly
different from the overall burden by hauliers in other countries.
It is the case, however, of course, that we have been working
very closely with the haulage industry over the past couple of
years. The Road Haulage Forum has been running for almost two
years now, bringing together ministers from the DTI, from the
TreasuryI am the Treasury minister on that forumchaired
by Lord Macdonald at the DETR. We have been looking very closely
with the industry at the challenges that it faces and the competitiveness
issues that they have been raising, and that is the background
to the very substantial package of measures that the Chancellor
announced in the pre budget report in Novemberthe freeze
on fuel duty; the reduction in duty on ultra low sulphur diesel,
subject to what happens on ultra low sulphur petrol; the lorry
VED reform; the refunds of lorry VED which have already been paid
since November ; and a ring-fenced fund to assist the development
of the industry in the future. So the government certainly has
not been complacent on these issues at all but we have taken very
substantial steps in the pre budget report to address the industry's
435. And you think you have gone as far as the
(Mr Timms) The industry has very warmly welcomed the
package of measures that the Chancellor announced in November.
Hauliers I have spoken to have welcomed it very warmly.
(Mr Hain) Can I add perhaps that I notice that the
Opposition did not ask for more than 3p off the duty which is
exactly what the Chancellor promised in his pre budget report.
So I have not seen any clamour for a higher rate of duty reduction
to come from the Opposition, unless the hon member is suggesting
Mr Chope: I think, for the record, we said a
minimum of 3p off. When we get into government, we will see what
that will be!
436. Just to clarify the issue here, you quoted
quite recently the evidence we received from the CBI. Does the
DTI have a mechanism whereby it monitors the impact of fuel duty,
of transport costs on across the board of industry, or does it
just depend upon the figures which are provided from time to time
by organisations like the CBI to committees like this? Is there
a regular information-gathering process within the DTI so that
the impact of fuel duty on industry, if it is deleterious, can
be conveyed to the Treasury at the appropriate time so that the
worst excesses can be avoided?
(Mr Hain) We are in constant contact both with industry
on a daily basis and with the Treasury naturally and, given the
legitimate concern and anguish that there has been in some quarters
about the massive increase in the world price of oil and the way
that is fed through to domestic fuel prices, of course we are
monitoring this all the time, and we are naturally concerned about
437. Over a considerable period, I have been
spending quite a lot of time with small businesses in meetings
that I have set up or visits to business associations and lunch
clubs and so on, and there have been three consistent messages
creeping across. One is they need a stable economic environment
in which to plan; the other is that they want government action
to improve educational standards and skills levels; but the third
one has been about transport. The important message is that small
businesses see themselves as small businesses, getting on with
the nitty gritty, and they want the government to act as their
voice and be their champion on those three issues. Do you recognise
that a stable economic environment is being threatened for very
small businesses by the cost of fuel; that fuel taxation is a
significant aspect of that for them; but that, most of all, what
they are expecting is the government to act as champion in getting
a stable environment for them in the cost of fuel?
(Mr Hain) I do recogniseand Stephen might want
to add to thisthat fuel costs are an important factor,
as I said to Roger earlier, in small business overall cost levels
and, therefore, their profitability but I also agree with your
point that a stable environment means not just macro economic
stability but everything, including skill levels and fuel prices
as well. Small businesses especially might not have access to,
as it were, larger transport routes and mechanisms, as big companies
do. We are very aware of this and that is one of the reasons why
we have been pursuing the policy we have both in OPEC which has
seen a reduction in the world price of oil down from the mid-30s
to the mid-20s in terms of dollars per barrel, and also in our
handling of fuel duty matters.
(Mr Timms) I certainly recognise the issues you have
given that small businesses are particularly concerned about,
and the fact that we have achieved an unprecedented degree of
stability in the economy in the last three years has been a particular
boon to small businesses and across the economy more generally.
There are, as you have said, concerns about fuel costs. The package
I outlined a moment ago that the Chancellor announced in November
does amount to 8p per litre for hauliersa reduction of
3p directly on ULSD but adding the other measures up as well that
comes to 8p per litre equivalent reduction for hauliers, so it
is a very substantial contribution to reducing costs in an area,
and I think it will be particularly welcome to small businesses.
I think it is very important, however, in looking at these matters
that the government does not take short-term knee-jerk measures
which might appear to address a concern at the moment but which,
if implemented, would jeopardise the very stability you have referred
to as the biggest gain for small businesses in the last three
or four years.
438. Much of the evidence which has been submitted
to us indicates that the price of motor fuel is relatively "inelastic"that
wonderful economist term. Would you agree?
(Mr Timms) We are confident that the effect of the
fuel duty escalator has been to reduce significantly emissions
and fuel use. I think probably the most powerful mechanism for
that, though, has been encouraging people to use more fuel-efficient
vehicles, and certainly the fuel duty provides incentives to that.
Also, and it is interesting how seriously the haulage companies
are taking this, it is encouraging professional drivers to drive
in ways that are fuel-efficient. There is good evidence of the
impact that driver training can have in helping people drive in
a more fuel-efficient way and, thereby, save fuel. I think it
is very clear. We think that by 2010 the effects of the fuel duty
escalator as it has applied since 1996 will be to reduce the amount
of CO2 emissions into the atmosphere by between 1 and 2.5 million
tons, so it is a significant impact that we are able to observe
439. When you say "driver training",
do you mean public information type material or what?
(Mr Timms) No, I think haulage companies are paying
more attention to how their drivers can drive vehicles in a way
that is more fuel-efficient, and that is one of the issues we
are looking at. I mentioned the ring-fenced fund, the £100
million fund over three years that was announced by the Chancellor
in November to assist the industry addressing some of the current
issues it faces and one of them is driver training. We are looking
at whether we can help haulage drivers to be more efficient in
the way they drive, to reduce their fuel consumption, and so reduce
the costs that the companies are facing.