Cutting fuel duty for heavy lorries – here’s how from FTA

The Freight Transport Association says that fuel duty for heavy lorries could be halved at a cost to the exchequer of around £380 million per year – a sum already exceeded by increased VAT and North Sea oil revenues to the Government as a consequence of higher world oil prices. FTA says that the transport industry desperately needs support in the face of increased diesel prices of over 40 per cent during the last year. The Government cannot deliver lower oil prices but can cut fuel duty.

FTA commissioned PricewaterhouseCoopers (PwC) to research the impact on Government revenue of decoupling diesel duty on heavy lorries of over 38 tonnes from duty for other commercial vehicles and for cars. The cost of operating a heavy goods vehicle (HGV) in the UK is approximately 10 per cent higher than in other parts of the European Union. The main cost of operation is fuel, which constituted 32 per cent of annual cost in 2007. At 50.35 pence per litre (ppl), fuel duty in the UK is twice the European average of 24.97ppl. FTA believes that this differential puts UK lorry operators at a significant disadvantage compared with other parts of Europe, a disadvantage which will become even more serious if the EU goes ahead with plans to liberalise road haulage, thus allowing foreign operators to offer cheaper prices in the UK than can be achieved by the domestic industry.

The most favourable option identified by PwC allowed for a rebate of 25ppl to be provided, calculated on the distance travelled against fuel purchased in the UK by operators of vehicles of 38 tonnes and above, the weight level most favoured by foreign companies working in the UK and thus providing the most intensive competition. This arrangement could be further refined by restriction to Euro 3 vehicles and above - those producing the least emissions. A rate relating to miles per gallon could be set by HM Treasury.

PwC has calculated that such an arrangement would reduce Government income from these vehicles from around £1 billion per year to £413 million. However, providing the rebate would itself result in further income from the Government of some £200 million. This would result from increased corporation tax, business growth generating more taxation, new fuel purchases by foreign operators working in the UK, and increased employment leading to higher income tax and national insurance receipts. Thus total Government income would reduce by only around £380 million.

FTA Director of Policy James Hookham said, ‘The transport industry delivers the UK economy for the benefit of the whole population. The industry is clearly suffering from the massive increases in the price of diesel whilst the UK operates the highest levels of duty in the whole of Europe. And with the EU about to remove the present limits on foreign lorries working in the UK, now is the hour for the Government to deliver some practical steps to support the industry.

‘After the 2000 fuel crisis Gordon Brown promised to consider the way in which transport is taxed. Eight years later we have seen no progress. The proposals researched by PwC for FTA offer practical and relatively economic means of real assistance for our vital industry at such a difficult time. The Government must address these problems.’

FTA has submitted the PwC proposals to the Chancellor and to the Prime Minister.