Diesel duty harmonisation for trucks remains an elusive goal

The Freight Transport Association has expressed disappointment at plans by the European Commission to address the competitive distortions created by wide variations in diesel duty across the European Union.

FTA had hoped that the Commission would back industry calls for diesel duty harmonisation. Instead, in an amending directive published this week, the Commission has proposed new minimum levels of diesel duty and petrol duty for the period 2010-2014. These duty rates carry forward the gradual uplift in duty levels which is set out in the 2003 Energy Tax Directive. Under the Energy Tax Directive, minimum diesel duty rates are set to rise from Euros 302 per 1,000 litres to Euros 330 per 1,000 litres by 2010. The Commission proposals increase the 2010 minimum threshold to Euros 340 per 1,000 litres. This would subsequently rise to Euros 359 in 2012 and to Euros 380 in 2014.

However, even these moderate uplifts are watered down by derogations to many member states including Belgium, Spain, Luxembourg and Austria. All have until 2016 to move to the new level.

Simon Chapman, FTA’s Chief Economist said: ‘Diesel duty harmonisation is as elusive for industry as ever. The role of the Commission should be to champion the principles of a free market for goods and services against the self-interest and protectionism of individual member states. On this occasion, the Commission has opted for political expediency. Whilst this might mean the chances of member states accepting the proposals are improved, they fall woefully short of what is needed to tackle the deep-rooted competitiveness anomalies faced by UK-based road hauliers as a result of diesel duty rates which are twice as high in the UK as the European average. Rather than tackling the problem, it is simply perpetuating the existing inequalities.

‘The Commission’s consultation paper itself concedes that increasing minimum duty levels is not the first choice. The majority of the respondents to its consultation on a range of possible approaches to addressing the competitive anomalies created by diesel duty variations supported a harmonisation of duty rates.

‘Even if the current diesel duty level of 48.35 pence per litre was frozen in the seven Budgets between now and 2014, UK-based hauliers would still be paying 23 pence per litre more than the EU average. If the Chancellor increased fuel duty by inflation in each of those Budgets, hauliers would be paying 32 pence per litre more than the EU minimum compared to 28 pence per litre today.’

Despite the proposal’s shortcomings, FTA believes that the UK Government should back the plans as it would allow a decoupling of duty on diesel used in trucks from that of cars. This has been a potential sticking point in the Government creating a road pricing mechanism alongside fuel duty that ensures tax-neutrality for UK-based road freight operators.