General outlook

1. The submission is made at a time of exceptional difficulties for many firms providing road haulage services. Unusually high levels of business failures and voluntary exit from the sector are expected. The surge in the price of diesel over the past 15 months has been even greater than the increase in petrol prices and has fuelled inflation and hit businesses across the economy. Haulage rates have risen by around 20%; and while diesel prices have eased back slightly in recent weeks they remain high and volatile.

2. The RHA urges members to recoup cost increases from customers where justified and has guidance on calculating the impact of fuel price increases. However, strong resistance to haulage rate increases is apparent from many customers. Where fuel escalators are in place, rate increases for any other cost increase are being resisted.

3. Pressure on cash flow is extreme. RHA members complain that customers, already slow to pay, are delaying even further and we have reports of leading companies taking "payment holidays". Banks are less willing to lend and are often charging more for the working capital they do provide. The credit squeeze is also apparent in fuel credit insurance: half the haulage diesel in the UK is supplied with third-party cover and that has been withdrawn from a number of hauliers, especially linked to vulnerable sectors including construction and retail, during summer 2008. This has impacted immediately, and in some cases fatally, on cash flow. At the same time, demand in many sectors has fallen sharply. Local regulations, notably the controversial and unpopular London Low Emission Zone, are also having a negative impact on the sector.

4. The industry has a firm belief that a significant shakeout in the industry is under way and is expected to peak during the early months of 2009. Those companies that remain will require to charge substantially more for the services they provide than customers have been used to paying and there is a clear warning that services may be less flexible.

5. There are strong fears, however, that the vacuum created by the failure of British haulage businesses will be filled by trucks from abroad – from Ireland, Western Europe and, importantly, the new Eastern European countries.

6. The fall in the value of the pound against the euro and the Swedish kroner is expected to result in increased prices for new trucks, making investment more difficult. Truck manufacturers are likely to seek increases in prices in the order of 15%. At the same time, employment costs will continue to rise with increased social costs, health and safety training and the introduction of the driver CPC from late 2009.

7. British haulage has suffered at every level from long periods of poor profitability and high taxation. In 1999, John Prescott wrote in his foreward to "Sustainable Distribution: a strategy" that "Today our larger distribution companies are major players in the international market." No longer! Since that year, most of our leading companies - Exel, Tibbett & Britten, Hays Logistics, P&O European Transport Services and Christian Salvesen among others, have all been sold, mostly to foreign competition. Against this background, the industry is looking for increased levels of support from the government. In particular, that means a change of thinking on fuel taxes and further improvement to enforcement and charging beyond those currently planned in respect of foreign trucks.

Diesel duty: too high a business tax

8. Trucks provide an essential service to the UK economy and people and the duty charged by the Treasury on the diesel they use is therefore a general tax on British business. This tax on business is already at much the highest level in the EU and is around double the average rate for Ireland and continental Europe.

9. A tax at the level of UK truck diesel duty would be condemned from all sides if it were to be imposed on any other capital equipment in the supply chain. A comparable tax would be unacceptable on work stations on a car assembly line, printing machines or food processing plant. There are a number of consequences for UK haulage, which we explore below.

10. This high business tax makes the UK less competitive. A typical articulated lorry burns around £50,000-worth of diesel a year (exc. VAT); of that, £25,000 goes to the Treasury as duty, impacting on hauliers’ costs and cash flow. The same truck abroad pays on average just £13,000 in duty – that is, £12,000 a year less. The difference is often greater. Belgium, for example, charges the EU minimum duty of 30.2 eurocents a litre compared with 63 eurocents a litre in the UK (even accounting for the decline in sterling over the past year; at the exchange rate of 15 months ago, the UK rate was 75 eurocents a litre). Multiplied across even 100,000 articulated trucks, that amounts to a duty take per year of £1.3bn more than our competitors, which must be passed on to UK customers. We calculate the total for all trucks to be in excess of £2 billion a year.

11. Increasingly, customers are driven to buy haulage from foreign trucks using low-tax fuel, in which case the UK Exchequer receives nothing whatever for the use of the road and the UK loses road haulage jobs and businesses. To make matters worse, these trucks do more road damage, are more likely to be running illegally and are three times more likely to be involved in a road accident than British trucks.

12. The transport select committee, in its Freight Report this July, found the duty gap between the UK and the rest of the EU to be "patently unfair" to British hauliers facing competition from abroad, eight years after the government announced proposals to address the problem. We welcome the committee’s finding and urge the government to take the issue seriously in its formal response.

13. We reject the Treasury’s bold assertion - made since it felt the need to abandon the lorry road user charge in 2005 - that UK hauliers’ tax levels are in line with competitors’ when a "basket of taxes" is taken into account. The Treasury has not researched the issue and the realities of professional haulage suggest a very different situation in what is a highly competitive market. The extent of the fuel duty gap cannot be simply written off in respect of our near neighbours, who see the UK as an easy target; and it is patently absurd in respect of trucks from, for example Eastern Europe, with cheaper trucks, cheaper drivers and much lower levels of fuel duty.

14. From May 2009, all the Eastern European countries will have access to the UK domestic haulage market (and the EU’s intention is to remove cabotage rules completely by 2014). The UK haulage sector is under no doubt that we will see a substantial increase in the level of foreign trucks doing UK domestic work at this stage. Figures recently published by the Department for Transport indicate that there is already substantial unlawful cabotage; for example, Polish trucks undertook 22,000 unlawful cabotage movements in 2006, the figures suggest. There was no enforcement action against this unlawful work, so far as we are aware.

15. The Treasury will be aware that trucks fuelled abroad have large tanks and can travel up to 3,000 miles on one tankful; they have no need to buy fuel here. In addition, UK domestic regulations have driven the haulage industry to adopt, in the main, three-axled tractor units to reduce road damage. These trucks cost £5,000 more than two-axled tractor units and use more fuel – up to 5% more, RHA members tell us. Foreign trucks coming into the UK in ever-increasing numbers almost all use the cheaper two-axled tractor option, putting UK operators at a cost disadvantage.

16. High fuel duty is affecting British hauliers across the spectrum. The high level of duty hampers investment in the industry by increasing the amount of working capital haulage companies require, simply to fund the fuel element. Professional hauliers are already required to have significant reserves under O-licensing regulations (£6,200 for the first truck and £3,400 for each truck thereafter). The current duty level imposes a further hurdle of more than £4,000 per typical 40-tonne truck - £2,000 more than competitors from abroad.

17. Hauliers already face exceptionally long delays for payment (see Appendix). This is a structural weakness caused by the buying power of companies in what is a highly competitive market, with some leading publicly-quoted companies among the worse payers.

18. Passing on costs to customers is easier said than done. We have heard from other trade associations of the impact of high haulage rates on ability of British hauliers’ customers to compete with foreign competition. This is especially true of those areas more remote from major markets, such as Scotland, where there is a real fear that more companies will relocate, often to places outside the UK, further damaging the customer base and viability of the road transport sector.

The next step on diesel duty for trucks

19. The Treasury justifies its planned duty rate increases on two grounds: it needs the money; and it must send the right low-carbon price signals. However, further duty rises cannot be justified on either ground as far as the supply chain is concerned. The tax level on this part of the supply chain is already far higher (around twice as much) as in the rest of the EU and quite high enough already; and the carbon signals are largely irrelevant. Trucks are not going to and from work, nor being used for leisure; they are at work, providing a service essential to the economy. Nor, in the main, can goods go by train or bus rather than by truck. Indeed, one might think of the vehicles not as trucks but as buses for freight.

20. Separating truck duty from motorists’ duty would allow the government to let duty rates on 32 million vehicles drift upwards without the strong resistance of the haulage community that runs just 400,000 vehicles.

21. We believe that a reduction of 25 pence a litre in the duty paid by hauliers is justified and necessary. We named this reduction an "Essential User Rebate" when we first argued the case a decade ago; the argument remains valid today. We recognise, however, that there is little political support for a reduction on such a scale at present.

22. We urge that:

1. there be no further increase in the fuel duty business tax on trucks;
2. a new "road freight fuel duty" be established, with general increases in fuel duty rebated to truck operators through, for example, the VAT mechanism;
3. the duty rate on diesel and petrol, currently at the same level of 50.35 pence per litre, be varied to maintain a consistent parity in pump prices. This is necessary because of the surge in diesel commodity prices ahead of petrol prices. Whereas 15 months ago diesel was equal in price or up to 3 p/lit more than petrol, the gap has widened to 12-to-15 p/lit and, we are advised, is unlikely to narrow much in the medium term. The established principle of price parity would be mostly restored by a 5p increase in petrol duty and a 5p reduction in diesel duty. The net income to the Treasury would be unchanged, as volumes of petrol and diesel sold in the UK are pretty well equal; and the equity of change that meant the burden of high fuel costs was shared equally would be clear. Diesel cars are almost as popular as petrol - or at least, they were in 2007, accounting for 41% of new car registrations.

Enforcement – more needs to be done

23. Foreign trucks are much more likely to be breaking the law and almost three times more likely to be involved in an accident than UK trucks.

24. At present there are no penalties that, in practice, can be imposed against foreign drivers/hauliers for anything but the most serious breaches; that will be remedied to some extent by the fixed penalties scheme which the government is working to introduce from April 2009.

25. Enforcement is done by VOSA, a Department for Transport executive agency, using funds raised from fees paid by the UK haulage industry. The police are also involved in enforcement, although only a few forces put significant effort into this area of policing.

26. We note – and welcome – increased activity at VOSA and the additional £24 million over three years for enforcement, announced in April. However, more needs to be done.

27. In particular, we seek the political impetus and funding necessary to restore fair competition as one of the core aims of VOSA, and from that to enforce overloading and cabotage rules. At the end of the 1990s, the government wanted to minimise the use of two-axled tractor units; they are now flooding into the country, quite clearly overloaded, and we believe a relatively short, sharp and concerted campaign around the ports would have a significant lasting impact. It would also win much support from within the haulage sector.

Eurovignette daily charge

28. There is a way to charge foreign trucks for using Britain’s roads that is well-proven in other countries – the Eurovignette daily charge. The government decided this spring against bringing one in, but since then we have new figures on international trade that shows the UK has a much lower market share than previously thought and the trend of foreign trucks coming into the country, and staying for significant periods, is stronger than previously thought. We also have greater clarity on the direction of EC Regulation on cabotage. The benefit/cost ratio stated at 1-1.25 would in fact be very much higher, the RHA argues, were the new information to be factored in and we urge the government to review its decision as a matter of urgency. We consider that we have enough information to justify a review on the information that we now have, and using the daily charge available under existing EU rules, without waiting for either the foreign vehicle survey planned for next year or any increase in EU maximum daily charge.

Fuel duty in the timber haulage sector

29. We have particularly strong representation in respect to diesel duty from the timber haulage sector and their customer representatives at the Confederation of Forestry Industries (ConFor) and the Timber Transport Forum, two organisation with which we have been working. The competitiveness of the UK timber sector is being undermined by high haulage costs at a time of strong competition from Europe, especially following a decline in demand from the US.

30. Haulage is a major component in product selling price, at between 35% and 50% of the price delivered to timber mills. Rates have already risen as a result of the reduced driving time imposed by EU Regulation 561/2006, which brought off-road driving within scope of the drivers’ hours rules but which, we believe, is widely overlooked in the timber sector of our EU competitors; also, the Transport Secretary’s rejection of 25.25m and 60 tonnes for any UK applications earlier this year even on a trial basis means we are unable to access the very substantial haulage economies enjoyed by our major competitors in Scandinavia. In addition, our understanding is that Scandinavian competitors are allowed to run with low-duty tanks for the off-road element of their work.

31. More than half of a timber truck’s operating costs goes in diesel; and just over 25% of total operating costs geso to the Treasury as diesel duty. One half of the diesel used in British round timber haulage is used when the vehicle is off-road, for loading and for in-forest driving, where the fuel consumption rises substantially. We seek a reduced duty level for this off-road element, which would reduce the price of timber delivered to mills by 5% and significantly enhance UK competitiveness. Modern technology means such a system could be fraud-free and simple to introduce and to administer, we believe.

32. Such an off-road duty regime would be of significant benefit to the UK’s forestry and wood-using industries as a whole, currently contributing £7 billion to the UK economy and employing 170,000 people. It is worth noting also the bio-diversity, carbon sequestration and recreational benefits of a viable forestry sector are considerable.

Vehicle Excise Duty

32. We note that VED rates on trucks have been held steady for most of the decade and this is welcome. We would urge that this policy continue, to maintain a broad parity with our competitors from abroad and to avoid unnecessary increases in business taxation.

Appendices:

• Single-page guide to the Road Haulage Association
• Graph on diesel costs from RHA weekly fuel price survey
• Graph of UK v EU diesel duty rates
• Spreadsheet of UK diesel duty rate and those of other EU states, with impact on annual fuel bills
• RHA Fuel Adjustment Guide