Memorandum submitted by The Royal Academy
1.1 The Royal Academy of Engineering welcomes
the opportunity to submit evidence to the Trade and Industry Committee's
inquiry into the "Impact on Trade and Industry of Motor Fuel
Tax". The response which follows is a collation of personal
views expressed by Fellows with direct experience of both the
manufacturing and distribution industries. The views expressed
are not necessarily representative of all Fellows of the Academy.
1.2 Fellows commented on the impact of high
fuel prices on manufacturing industry and the impact of higher
fuel prices in the UK on the distribution industry compared to
other EU countries. The breadth of UK industry and the differing
impact on different sectors require that this memorandum be of
a general nature.
2. IMPACT ON
2.1 The impact of transport costs varies
from sector to sector, but generally they are of low significance
to manufacturers of high value goods and are of more importance
to manufactures of low value goods. Transport costs as a proportion
of all costs may vary from 2 per cent in areas such as pharmaceuticals
to 10 per cent in areas such as automotive industries. However,
direct costs resulting from the increase in fuel prices are unwelcome
and adversely affect profitability.
2.2 Whereas rising fuel costs have encouraged
companies to find ways of reducing mileage and hence emissions,
many have now reached a plateau with no further savings possible.
Thus further fuel price increases cannot be fully mitigated by
further reductions in mileage. Areas where little further improvement
can be made include transport of personnel (cost of audit visits,
key technical staff, sales forces etc).
2.3 There is concern that increased staff
travel costs will result in higher wage claims, adversely affecting
2.4 The UK currently enjoys the advantage
of a flexible and mobile workforce and much inward investment
has been attracted on this basis. Rising transport costs for that
workforce can only make it less mobile and so erode the advantage.
2.5 Over time high fuel prices, other things
being equal, will tend to favour manufacturing in geographical
locations closer to their markets as transport costs become higher
relative to the saving associated with manufacturing in a less
expensive location. Conceivably, this may result in an advantage
to firms in the South East closest to the largest markets.
3. IMPACT ON
3.1 Fuel costs represent less than 30 per
cent of the overall cost of running a fleet of vehicles but are
more significant for the transport sector than for industry as
a whole. It is not the fact that fuel prices are high that impacts
on the competitiveness, but that they are higher than for competitors
based in other EU member states.
3.2 Across the EU the most variable costs
of operating a fleet of vehicles are vehicle excise duty, tolls
and fuel with fuel being the most significant. Since the UK Government
accepted the principle of cabotage
and UK operators have been exposed to competitors with lower fuel
costs, benchmark haulage rates have been depressed. Consequently,
UK haulage rates have fallen by nearly 20 per cent relative to
road freight costs.
4. GENERAL OBSERVATIONS
4.1 The function of the fuel price escalator
has been to encourage industry and the public to be more economical
in their use of fuel, and hence reduce emissions of greenhouse
gases and other pollutants. Where there is a difference in the
cost of fuel for any activity between geographical regions there
is a danger that the activity will be exported. No net reduction
in emissions will be achieved and the area incurring greater costs
will lose economic activity.
4.2 It is unacceptable that the UK should
bear the highest fuel tax in Europe and risk losing economic activity
to other EU member states.
4.3 It is the relative difference in fuel
prices which is of concern to Fellows rather than the actual price.
A suggested solution to these concerns is a rapid harmonisation
of fuel duties across the EU.
4.4 Economic instruments can have a role
in the solution of environmental problems but need to be matched
with incentives to modify behaviour rather than taxing an activity
out of existence. Incentives should be put in place to encourage
new, cleaner technology and its uptake. Further funding for research
and development of these technologies is also essential.
4.5 Long term, stable policies in this area
will allow industry to prepare for and adapt to the changes necessary
to safeguard the environment whilst maintaining industrial competitiveness.
7 Cabotage-The right given by a country to an operator
domiciled in another country to carry goods or people between
two points wholly within the borders of the first country. Back