The dramatic rise in the price of oil over the last two years, culminating in the eye-watering increases over recent months, has had an alarming impact on anybody driving a car or running a truck. Geoff Dossetter of the Freight Transport Association says the Government must take action
Diesel is the lifeblood of the economy. No commercial product has any value until it is delivered to the customer. If you’ve got it then it has been in the inside of a truck. And the cost of the diesel running that truck has risen by 40 per cent in the last 12 months. Sadly, with oil at almost $140 a barrel at the time of writing, all of the signs suggest that the erstwhile forecasts of $150 or even $200 a barrel could turn into reality.
For the largest lorries fuel costs used to amount to about 30 per cent of the overall costs of running the vehicle. That is now 40 per cent. Bad enough if you are delivering your own goods in your own vehicles, but almost catastrophic if you are a haulier whose total business is dedicated to transport.
Of course, the UK Government cannot be responsible for the world price of oil. Oil is a homogenous product and international price differentials are largely based on buying patterns, delivery arrangements, and local negotiations. But the crucial differential is that which is imposed locally and not dictated by the international market - government duty.
In the UK duty on diesel is 50p per litre (ppl). This compares with a European average of 25ppl. This lamentable situation was kicked off in 1993 when the then Tory government decided to introduce the hated fuel duty escalator. The plan was to protect the environment by discouraging the use of petrol and diesel by imposing higher than inflation annual increases in duty. Labour’s Chancellor Gordon Brown approved and continued the policy from 1997 and the UK went from having amongst the cheapest fuel in Europe in 1993 to the most expensive by 1999.
The cynics amongst us thought that the policy was actually nothing to do with protecting the environment. It was all about raising taxes. And, in any event, lorry journeys, delivering goods, are essential and unavoidable journeys. Putting the price of diesel up does not result in the journey not being made. It just puts the price of that journey, and the cost of the product, up.
The inevitable happened. Although the escalator was abandoned at the end of 1999 it was too late and in 2000 the world price of oil went up. So the UK now had the toxic combination of a high tax regime and a high price for oil. The result was the fuel crisis with both motorists and commercial vehicle operators struggling with disproportionate costs for transport.
On the back of the events of 2000, Gordon Brown said that he would do something to help the haulage industry. But, eight years later he hasn’t. The result has been an increasing number of foreign lorries coming to work in the UK at operating costs that cannot be matched by the domestic industry having to pay so much more for its diesel. And we now find that, at a time of the highest prices for oil we have ever seen, the UK transport industry continues to be obliged to pay the highest rates of fuel duty in Europe, probably the world. UK industry must compete with its European neighbours carrying the burden of higher than necessary fuel costs.
The solution to this problem is not particularly complicated. Cut fuel duty and bring it in line with the rest of Europe. Of course part of the government’s problem is that they shouldn’t be starting from here! They have become too reliant on road user taxation with about £1 in £8 of all government income from this source. This means that cutting fuel duty, and the vast income from car drivers, would have to be compensated by raising other taxes, probably equally unpopular.
Selective fuel duty
Fuel duty could, however, be cut for commercial vehicles only. The Freight Transport Association first suggested this decoupling process almost ten years ago in the run-up to the 2000 fuel crisis. FTA put forward a variety of means to achieve this – a different ‘blue’ diesel for lorries only, or a VAT accounting adjustment, or an essential user rebate (like buses already have), or a special fuel card account. None of them rocket science. Any of them could work. But none of them has been progressed.
In June 2008 FTA tried again. This time the Association commissioned the consultants PricewaterhouseCoopers (PwC) to devise a scheme and to demonstrate the financial impact on government revenue.
PwC found that halving fuel duty for the heaviest lorries, those over 38 tonnes which were in competition with Europe, would reduce annual income to the exchequer from about £1 billion down to £413 million. However, the Government would then accrue new income of around £200 million made up from corporation tax, sales of diesel to foreign vehicles, reinvestment, income tax and national insurance. So the total loss would reduce to around £380 million, a figure more than compensated by the increase in North Sea oil revenues and VAT on higher pump prices.
In the overall scheme of things it must make fiscal sense to sort this problem out. Goodness knows the Government has had long enough to recognise it, and to deal with it. They should make it happen, and sharp about it too.
The UK transport industry is in trouble and needs help. Not a hand-out but a change of policy. No other country in Europe operates such an outrageous tax on such an essential industry. The transport industry delivers the economy. The higher price of diesel hits everything we buy and is inflationary. The policy needs changing and the Government must get on with it.