Memorandum submitted by the Railway Development
1.1 The Railway Development Society (RDS)
is an independent national organisation campaigning for more and
better rail services, to enable more people and freight to travel
by rail rather than road. Together with the members of many rail
user groups affiliated to RDS we represent 20,000 rail users.
1.2 RDS is pleased to give evidence to the
Trade and Industry Select Committee on the matter of fuel taxation.
RDS is primarily concerned that if road haulage becomes cheaper
due to lower taxation, the viability of freight by rail will be
undermined. RDS is of the view that motorised road traffic does
not cover the full costs it imposes on society, so any lowering
of fuel taxation per se would not go any way towards addressing
the social issues surrounding fuel taxation.
1.3 RDS is also extremely concerned that
lowering taxation on fossil fuels sends the wrong message. Climate-changing
energy sources should be discouraged by high taxation so that
there are incentives to reduce pollution. A significant proportion
of the money collected should be ploughed back into funding alternatives:
public transport, freight by rail, renewable energy, and lower-emission
1.4 Uniformed public opinion, fuelled by
the media, believes that the cost of road fuel is excessive and
is clamouring for a general reduction. Over and above this, the
road haulage industry is pressing for concessions for themselves
alone. The evidence offered in this document will endeavour to
set out some counter arguments and a possible solution.
2. ROAD TAXATION
2.1 The road lobby often puts forward the
argument that only a fraction of the revenue collected in taxes
by the government is used for road construction. The figures they
are keen to quote are £6 billions spent on roads compared
to £32 billions collected in taxes. However, this is a spurious
argument fuelled by misleading figures.
2.2 Firstly, there is no "ring fencing"
of taxation in this country. The total sum of taxes generated
from all sources, including roads, is available for the government
to use as it sees fit. Certainly, if road taxes fell to the levels
demanded by road interests, other taxes would have to rise to
compensate. This situation can be seen in Europe where some indirect
taxes like that on fuel are lower than the UK, but direct taxes
such as income tax are higher than the UK. The oft quoted figure
of £32 billion also includes VAT. No other industry demands
that its VAT be directly reinvested in itself.
2.3 However, RDS would like to see more
positive moves to use the money generated by fuel tax to fund
rail freight, public transport alternatives and better facilities
for walking and cycling. It is clear that good quality alternatives
must be in place, or on the way toward being in place, before
modal shift will realistically occur.
2.4 Secondly, there is a lot more to the
cost of roads than simply construction and maintenance. Deaths,
injuries, pollution, congestion and land use to name but a few,
all have a price tag. For example, the DETR allows a figure of
£2 million per life saved to justify road improvements. By
using this figure multiplied by the 3,500 fatalities per annum
on our roads we have a cost of £7 billion for direct deaths
2.5 Road haulage shelters behind the gross
figure of road taxation when it deploys its arguments. Most road
taxes are paid by private cars. Most damage to roads is caused
by heavy lorries. The recent go-ahead given to the introduction
of 44-tonne lorries on our roads, other than to and from rail
freight terminals, will compound this problem.
2.6 It is accepted, even by government,
that heavy lorries only pay some 70 per cent of their direct costs.
When indirect costs are added, the figure escalates even further.
The Road Haulage Association accepts that HGVs can cause up to
£28,000 of damage each year but generate just £25,000
in fuel tax and vehicle excise duty (The Independent, 23
September 2000). This figure does not include the costs of congestion,
climate change and accidents. Lorries account for 7 per cent of
road traffic but are responsible for 20 per cent of road casualties
2.7 Far from being overtaxed, it is widely
recognised that roads underpay their cost to society by some £30
billion per annum.
3.1 The Road Haulage Association is promoting
the idea of an "Essential User Rebate" (EUR) to give
a rebate of 30p per litre to "essential users". Not
surprisingly, they have defined essential users as themselves
alone! For example, it would appear that taxis with disabled access
and similar vehicles are not "essential".
3.2 The RHA idea that all road haulage is
"essential" is questioned by this Society. Much road
haulage, especially in the bulk sectors, is in direct competition
with rail, pipelines and coastal shipping. This is a very price
sensitive area and a blanket reduction of 30p per litre as demanded
by the RHA, under threat of further civil disobedience, would
result in massive transfers to road from these other, more environmentally
4. EUROPEAN COMPARISONS
4.1 The road industry is fond of making
comparisons with Europe but again does not compare like with like.
4.2 Many European countries have toll motorways.
Those that have free motorways almost always have a vignette system
to make foreign lorries contribute to their upkeep. (A vignette
is a form of licence purchased at the border by non-domestic lorries
permitting use of motorways or toll roads for a given period.
4.3 Many European countries have restrictions
on the use of lorries at weekends and bank holidays. Mandatory
lorry routes are also enforced as opposed to the "go anywhere"
policy in the UK.
4.4 Enforcement of regulations is often
more rigorous in Europe. For example, the rate of spot checks
for defects on lorries in Germany is nearly treble that in the
UK. In France, on the spot fines are levied for speeding.
4.5 Support for rail and inland waterway
transport is much more evident across most of Europe. Between
1982 and 1995, Britain spent half the European average (as a proportion
of GDP) on rail infrastructure investment. This enables those
modes to maintain a more healthy market share than Britain. Rail's
share of the UK passenger market in 1997 was less than 5 per cent
compared with nearer 7 per cent in Europe. (Source: EMCT. The
European average is based on comparisons with Germany, France,
Italy and Spain).
4.6 The sum total of these, and other measures,
is that in most European countries it is more expensive to operate
a lorry than in the UK. Several UK operators have attempted to
"flag out" lorries to foreign countries but have discovered
that, when all other costs are taken into account, it is more
expensive to register a lorry on the continent than in this country.
The net result is that very few lorries indeed have been "flagged
out" and most of those have returned to UK registration.
The FTA itself has commented that "flagging out" is
"not a productive avenue to follow".
5. POSSIBLE EFFECTS
5.1 As stated earlier, any taxation not
raised from road sources would have to be replaced or public expenditure
in other areas would have to be drastically cut back. Either way,
the average man in the street would still have to pay whether
by increased income tax, VAT, increased prices as company taxation
is passed on to the consumer, or by reduced public services.
5.2 A reduction in road taxation would encourage
more use of roads. Some, like the Freight Transport Association,
may argue that the high duty on fuel has not had an effect on
car use and pollution. It is true that distance travelled per
person by car has not fallen since the fuel duty escalator was
introduced. But even the AA agrees that were it not for this fuel
tax, car use would have grown at an even faster rate. Furthermore,
as a result of the British public's awareness of the need for
fuel efficient cars, to save money on fuel, cars purchased in
this country are on average one third more fuel efficient than
those in the USA. So, if fuel tax is lowered, congestion and pollution
would rise and the demand for more roads would increase. All this
would be covered by a reduced income source.
5.3 Already the wider effects of road traffic
are significant, and if it is to increase dramatically these effects
will also increase. According to the Royal Commission on Environmental
Pollution, in 1994 transport accounted for 24 per cent of UK carbon
dioxide emissions and road traffic accounted for 87 per cent of
transport-based carbon dioxide emissions. The effects of motorised
road traffic on air quality and human health are significant.
The Committee on the Medical Effect of Air Pollutants states that
air pollution causes between 12,000 and 24,000 premature deaths
each year. Research by the Environmental Transport Association
reveals that the health impacts of traffic pollution cost £11.1
billion each year. Furthermore, carbon dioxide emissions from
vehicles in Europe are set to rise by 30 per cent by 2010 (European
5.4 As described earlier under EUR, cheaper
fuel would enable lorries to undercut rail/water/pipeline transport
and undermine attempts to diversify into other modes. Even in
bulk traffics the balance between road and rail is very fine and
the government is already committed to allowing 44 tonne lorries
from 1 February 2001. This in itself is estimated by EWS, the
major rail freight operator, as being capable of abstracting 20
per cent of their business. The last budget saw the abolition
of the fuel escalator and massive cuts in the cost of excise licences
for heavy lorries. These measures have also assisted road haulage
to abstract traffic from rail.
5.5 The DETR has estimated that the removal
of all fuel taxes would reduce end product costs by only 1.25
per cent. Such a course of action would, of course, not only be
a huge loss to public finance, but would also close down all alternative
forms of freight transport in this country, including coastal
shipping, which incidentally carries 20 per cent of the country's
goods compared to 65 per cent by road, leading to widespread congestion
and increased pollution.
6. THE EXCHANGE
6.1 Much of the difference in price between
fuel in the UK and most of Europe can be explained by the increased
value of Sterling in recent years. Calculations can demonstrate
that if the value of Sterling compared to the French Franc was
the same now as it was in 1995 the cost of fuel in both countries
would today be almost the same. The high value of Sterling is
affecting all industry in this country. It would be grossly unfair
if one industry, road haulage, was singled out for preferential
treatment and its costs reduced at the expense of the country
as a whole, while other industries struggle on or go bankrupt.
7. AN ALTERNATIVE
7.1 Hauliers complain that foreign competitors
are able to enter the UK with a fuel tank of European diesel in
a lorry that is cheaper to tax etc and undercut them. We have
already stated, and the FTA agree, that it is no cheaper to register
a lorry on the continent. Therefore, the issue revolves around
the tank full of cheaper continental diesel.
7.2 About 10 years ago diesel cost more
in France than in the UK. At that time hauliers attempted to take
extra supplies with them from this country. Notwithstanding European
law, the French authorities simply did not allow this to happen.
Lorries were stopped at the ports of entry and made to discharge
excessive fuel. One could say this was a French interpretation
of EU law but it certainly worked. However we would not advocate
such action in the UK.
7.3 Most diesel brought from the continent
is of an inferior quality to UK sourced supplies. The use of ultra
low sulphur diesel is now universal in this country whilst continental
supplies still have a high potential to pollute. Sulphur dioxide
(SO2) emissions are a major contributor to acid rain, and also
contribute to poor air quality in and around urban areas, which
can be harmful to human health (DETR, 2000) It could be argued
that the UK government should restrict such imports on health
grounds, which provide an exemption to EU free trade principles.
Again, we would not advocate such action in the UK.
7.4 The price of fuel in this country is
one part of a national strategy on behalf of successive governments
of different persuasions to tackle the problems of pollution and
congestion. The unwillingness of our European neighbours to face
the issues involved should not be taken as a signal that we should
abandon our efforts. A simple mechanism exists to level the playing
field so that continental lorries cannot unfairly undercut UK
operators. It is a method widely used in Europe and one that UK
operators abroad have to pay. It has been referred to above. It
is the Vignette.
7.5 A vignette has to be purchased at the
border by a foreign lorry entering, for example, Germany. This
authorises the lorry to use German motorways which, unlike those
in France and Italy, are not subject to tolls. This enables the
German government to obtain additional revenue to assist in the
maintenance of those roads from lorries that are cheaply taxed
in countries that obtain the equivalent revenue from toll receipts.
7.6 In order to comply with European law,
a country cannot discriminate between domestic and foreign lorries.
All vehicles, even domestic ones, must purchase a vignette. At
first glance this would appear to defeat the object but quite
simply, the cost of a domestic excise licence is reduced by exactly
the same amount as the cost of a vignette. The cost to a domestic
lorry remains the same but foreign lorries would have to make
a new contribution which will partially level the playing field.
The levelling is only partial because the EU places limits on
the maximum that can be charged for a vignette. Nevertheless,
the contribution is valuable and avoids a blanket reduction in
fuel taxation which would have all the adverse effects mentioned
7.7 In its recent report, "The Road
Haulage Industry" (page xxiii, para 54), the Environmental,
Transport and Regional Affairs Committee recommends the adoption
of a vignette system in the UK as outlined above. The committee
has pointed out that European law restricts the ability of the
UK government to apply realistic charges for a vignette, but nevertheless
they urge the government to push for changes in the relevant European
legislation rather than simply accept the status quo. International
road hauliers based in the UK certainly complain vociferously
about the injustice of having to pay tolls or vignettes in Europe
while foreign lorries enter the UK for free. If nothing else,
a UK vignette would give the appearance that the government is
attempting to "level the playing field".
7.8 In a recent report on European best
practice to the DETR, the Commission for Integrated Transport
states that, as a traffic management tool, Germany is looking
at charging for HGV traffic. As Germany already has a vignette
system in place covering UK lorries, it would be interesting to
see just what form the new charge will take and whether it could
be applicable to foreign lorries entering the UK.
7.9 Before reductions in tax are contemplated,
we recommend that the vignette system be introduced and its effect
assessed, and a study of the new German proposals made with a
view to their application to the UK.