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Lorry Road User Charging
8 February 2002

FTA's submission to HM Treasury

Modernising the Taxation of the Haulage Industry

FTA welcomes the Chancellor's announcement of a review of the way in which lorries using UK roads are taxed. The Association has consistently pressed the Government for a thorough reform of lorry taxation. FTA has never argued that lorries should not pay their way. What the Association is seeking is a basis for taxation which is transparent and fair and enables better decision making on road use.

The current regime of VED and a universal rate of diesel duty irrespective of the road user is inflexible. As a result this places a heavy cost penalty on UK companies operating lorries in the UK and fails to treat UK and foreign lorries in an even-handed way.

Currently, UK operators face levels of freight taxes that are over twice the European average. The tax burden in VED and fuel duty for a UK operator running a 40 tonne gross weight articulated vehicle is £21,500 (assuming 70,000 mile a year), 25 per cent of total vehicle operating costs. This compares to a tax burden of £12,500 in Germany, £10,500 in France and £9,700 in the Netherlands.

In addition to benefiting from lower levels of freight taxes, foreign based operators pay nothing towards the use of the road network when they are operating in the UK. This is inequitable and exacerbates the cost disadvantage that UK operators have compared to their European-based competitors.

FTA seeks a series of warranties from Government in its approach to lorry road user charging:

• The introduction of a new system will not be used to introduce increases in the overall taxation burden on goods vehicle operators.
• The willingness to discuss the proposals does not prejudice FTA's ability to reserve its position if the cost or practicalities of the system outweigh the benefits.

We recognise, and are grateful for, the assurances that have already been given by Ministers in this respect and believe this is vital in giving operators confidence in the Government's objectives.

FTA believes that the overarching objectives of the new lorry user-charging regime are fourfold:

• The basis of the charge is transparent.
• The charge is straightforward and user friendly.
• The charge presents clearer and better opportunities for operators to reduce the tax that they pay through the way that they use the road network, by incorporating best practice and using more efficient technology.
• The charge is designed on a common protocol, which provides interoperability with future user charge systems elsewhere in Europe and congestion charging schemes in urban areas.

The network management objectives of introducing road user charges cannot effectively be delivered until user charges influence the decisions of all road users. FTA believes the Government should not approach lorry user charges in isolation. Rather, the development of a workable user-charge regime for lorries should be the first step to applying user charges to all road users.

The following sets out FTA's response to the specific questions raised in the consultation paper.

Q1: Are you prepared to allow your response or name to be quoted, or made available to the public?

FTA is prepared to allow our response or name to be quoted, or made available to the public.

Q2: Do you agree with the objectives underlying the proposal for a lorry road-user charge.

FTA agrees with the objectives underlying the lorry user charge proposal set out in 2.2 - 2.4. In addition the charge must be transparent and it should encourage better decisions by operators on the choice of vehicle, when the roads are used and which roads are used.

It is quite right that lorries should contribute to the cost they impose on the road network, on the environment and society. However, a balance must be struck between this objective and the need to set UK lorry taxes in the context of the taxes paid by continental operators with whom UK based hauliers must compete.

Q3: Are the issues the right ones for the Government to consider when assessing the options for taking forward lorry road-user charging?

FTA concurs with the broad objectives laid out in 2.5 - 2.6. From an operator perspective FTA would expect the Government to consider for each road-user charge option:

• The administrative burden on operators.
• Security of the system (in terms of commercially sensitive information and minimising the opportunities for tax evasion).
• Levels of enforcement required.
• Cost of equipment for operators and wider business benefits of the equipment.
• Universality and fairness of the system.
• Timeframe for delivery and likelihood of delivery.

Q4: Do you agree that time- or distance-based charging are the two main options for operating a lorry road-user charge?

FTA believes time-based and distance-based charging are the two main options. However, the long lead-time required for the distance-based regime means the two options should not be regarded as mutually exclusive.

The wide disparity in tax levels between UK trucks and foreign registered trucks requires an interim solution to tackle the competitive disadvantage that UK operators face. In practice, an interim solution need only apply to a limited range of vehicle weights to capture foreign vehicles.

Q5: Which charging option do you believe offers the most potential to ensure that lorry operators contribute fairly and efficiently towards the costs that they impose in the UK regardless of nationality?

FTA recognises the inevitable use of modern communication systems to facilitate tax collection. It believes that a distance-based charge using this technology offers the most potential to ensure that all lorry operators make an appropriate contribution to their use of UK roads. It also provides an important opportunity to create systems that differentiate between cars and lorries.

The level of charge must be sufficiently robust to influence road user decisions. The European Commission's proposals for a road user charge for lorries suggest a charge of 8 to 18 pence per kilometre. This necessitates reducing fuel duty and VED, if the overall cost burden on industry is not to increase.

A distance-based system must not penalise road users from using the motorway and trunk road network. A user charge regime focused on major traffic arteries would send the wrong message to road users. A saturation of adjoining local roads by vehicles avoiding the charge creates operational inefficiency and undermines the Government's environmental and transport policy objectives set out in 5.2. This would suggest that, in terms of operational practicality, a satellite based solution rather that a network of fixed roadside transponders is the most appropriate delivery mechanism.

The current ceiling of £750 per year imposed by the EU for a time-based option represents a fraction of the costs imposed on the UK network where a foreign vehicle is regularly used in the UK. This compares to the tax disparity between a UK and a foreign truck of £12,000. FTA believes that there is little long-term merit in a time-based paper system, even if bureaucracy for UK operators is minimised by linking the vignette with VED.

Q6: Are there any particular aspects of the design of the lorry road-user charge that would enhance its fairness and efficiency?

FTA has consistently argued that freight taxes should encourage operator best practice, and not simply penalise road network use. A distance-based charge is the option most in line with FTA's views. It offers the potential to tailor the level of charge to the time and point of use, and to reflect the environmental performance of the vehicle.

Q7: Has the Government indentified the main environmental and transport objectives that should be considered in this context?

FTA concurs with the environmental and transport policy objectives set out in 5.2.

Q8: Which charging option do you belive offers the most potential to contribute positively towards the Government's environment and transport policy objectives?

A distance-based charge offers the most potential to contribute positively towards the Government's environmental and transport policy objectives. Such an option encourages operators to minimise distance travelled and make use of safe roads at quiet times of the day, whilst incentivising clean, road-friendly vehicles.

A combination of a time-based charge, fuel duty and VED will capture climate change, local air quality and road maintenance objectives. However, this solution cannot influence road safety and traffic congestion.

Q9: Are there any particular aspects of the design of the lorry road-user charge that would enhance its environmental and transport impact?

The lorry user charge should ensure that operators are offered incentives based on criteria that they can influence. Equally, while there may be lorry activity which the Government wishes to discourage, higher road user charges should nonetheless respect the limitations on freight to travel by other modes or on particular roads.

In considering the design of the lorry road-user charge the Government should consider interoperability with proposals by the European Commission for user charging, and local authority congestion charging plans.

Q10/11: Which charging option do you believe offers the best combination of minimising compliance costs and creating wider benefits? / Are there any particular aspects of the design of the lorry road-user charge that would minimise compliance costs and create wider benefits?

A distance-based charge requires the operator to invest in technology and regularly download information. Such costs could be minimised if downloading activities can be linked to driver and vehicle management processes utilising black-box technology. Nonetheless, a distance-based charge is likely to place a greater burden on the operator than a paper-based system, which in its simplest form could be linked to VED.

However, the potential operational benefits of vehicle location and messaging, using satellites and roadside transponders, are significant for some operators. This is particularly the case for operators engaged in time-sensitive deliveries or where real time information can improve vehicle utilisation. In addition to monitoring the vehicle's progress, the real-time recording of the driver's activity is likely to increase productivity. It can also enhance vehicle and load security and improve the chances of recovery.

In summary, FTA welcomes this consultation and looks forward to a constructive dialogue with the Treasury and DTLR in the coming months. At the meeting of the Road Haulage Forum on 28 January 2002, FTA proposed the creation of an industry-led reference group to gather feedback from operators and to consolidate industry's response. We look forward to your response to these ideas and to further discussions on this important issue.

The consultation document Modernising the Taxation of the Haulage Industry can be accessed from the Treasury's web site at http://www.hm-treasury.gov.uk/consultations_and_legislation/haulage/consult_haulage_index.cfm

Last updated: Wed Jul 21 14:31:08 2004