This is the evidence submitted by the ABD to Parliament's Transport Committee.
Evidence to the Transport Committee's Inquiry into Taxes and Charges on Road Users
- Total revenue from road user taxes and charges exceeds £45 billion per year, which is at least seven times the amount invested by the Government in improving and maintaining the road network.
- Road user taxation affects the cost of goods and services to all members of society. High levels of road user taxation are regressive, affecting the poorer members of society the most.
- Current levels of road user taxation more than cover the full social and environmental costs of road use, as well as the costs of providing and maintaining the road network.
- Drivers already pay in taxation five times the amount recommended by the Stern Review to offset the alleged impact of CO₂ emissions on climate change.
- The massive benefits and vital nature of road transport to the economy and society are frequently overlooked when identifying costs.
- The main purpose of road user taxation should be to cover the costs of improving and maintaining the road network. The failure to invest adequately in new capacity is a major factor in today's levels of congestion.
- It is a fallacy that building new roads generates traffic. Traffic levels are related to growth of the economy, not of the road network.
- Britain's motorway network, in relation to the size of its economy, is less than half the average of the former EU-15 countries.
- Lack of sufficient investment in the road network has serious impacts on the economy, road safety, and the environment of towns and villages. There is a strong case for embarking on a major programme of strategic road building and widening of existing routes.
- The ABD is strongly opposed to all forms of road pricing or congestion charging. The costs of implementing and running schemes at the local or national level would add significantly to overall levels of road user taxation, as well as having a serious impact on privacy and civil liberties. It is also unlikely that such schemes would be effective in cutting congestion.
- Any road pricing scheme aimed at reducing traffic levels overall would require punitive charges to have a significant impact. These would have serious economic consequences, similar to those of a large increase in the price of oil.
- The ABD favours fuel duty as preferable to fixed charges like vehicle excise duty as the main method of charging for road use, since fuel duty is directly related to mileage covered and a vehicle's fuel consumption.
- Market conditions in the road haulage industry are distorted by the much higher fuel costs in Britain than in Europe. There is an urgent need to reduce fuel duty to the level of other European countries to enable British operators to compete on equal terms.
The ABD requests the Committee to give serious consideration to the points raised in this submission.
- The Association of British Drivers (ABD) was formed in 1992 to campaign for a better deal for Britain's motorists. One area of concern to the ABD has been the increasing imbalance between the revenue raised from road users and the level of investment in the road network.
- The ABD is a voluntary organisation funded by subscriptions and donations from its members and supporters. It receives no funds from public bodies or large corporate donors, so is truly independent. The ABD is a member of the Parliamentary Advisory Council for Transport Safety and the National Council of Voluntary Organisations.
- Many of the ABD's active members are from professional or managerial backgrounds. Malcolm Heymer, who is submitting this evidence on behalf of the ABD, holds a master's degree in Transportation Engineering and has over thirty years' local government experience in the fields of transportation modelling, highway engineering, transport planning and traffic engineering. Mr Heymer is willing to give oral evidence to the Transport Committee if requested.
- The following sections of this submission address the questions raised in the call for evidence.
- Revenue from road users and expenditure on roads
- Figures compiled by the Road Users Alliance from official sources for 2005/06 show that £45 billion was collected in road user taxation, made up as follows:
Fuel tax = £23.7 bn
VAT on fuel = £6.8 bn
VAT on vehicles = £6.9 bn
Vehicle excise duty = £5.0 bn
Company car tax = £2.6 bn
Total = £45.0 bn
In addition, tax is paid on vehicle insurance premiums, servicing and repairs, and car parking charges are levied by many local authorities and NHS Trusts. The true total of taxes and charges, therefore, is likely to be around £50 billion.
- In contrast, expenditure on roads in 2005/06 amounted to £7.5 billion, of which around 60 per cent was on new construction and improvement and the remainder on maintenance. So road users are paying in taxes and charges more than seven times the Government's investment in the road network.
- Impact of the current charging regime
- The current high levels of road user taxation have direct and indirect effects on the cost of goods and services to all members of society. Around 88 per cent of inland freight movement is by road, so the fuel and vehicle excise duties levied on commercial vehicles affect the price of all commodities, including essentials such as food. The costs of travel by car undertaken as a necessary part of business also have to be recovered from end users.
- High levels of road user taxation are also regressive, affecting the poorer members of society the most. The proposed retrospective application of emissions-based vehicle excise duty to cars bought since 2001 is grossly unfair on those with lower incomes, who cannot afford to replace vehicles that have been made virtually worthless.
- The low levels of investment in improving and maintaining the road network also have a significant effect on the economy, through the costs of congestion, wear and tear on vehicles, and road accidents that could have been prevented by new or improved roads.
- Capturing external costs
- It is frequently claimed that road transport creates external costs that are not covered by current levels of taxation and charges. These costs arise from impacts such as local air and noise pollution, accidents, and the claimed impact of CO₂ emissions on climate. Objective economic analysis leads to a different conclusion. In 1998 the Automobile Association published a report by David Newbery, Director of the Department of Applied Economics at Cambridge University, entitled "Fair Payment from Road Users: A review of the evidence on social and environmental costs." One of its main conclusions was "…there is no evidence that current transport taxes fail the test of sustainability, for they appear to more than cover the full social and environmental costs of transport, as well as the cost of providing the transport infrastructure."
- In the decade since that report was published, emissions from vehicles have continued to fall and taxes have risen further. Far from taxation failing to cover the external costs of road transport, therefore, it has become even more excessive.
- In 2006 the Stern Review on Climate Change suggested a 'carbon tax' of £44 per tonne of CO₂ emitted, claiming that this level of taxation would be sufficient to cover the economic cost of the climate change allegedly caused by that tonne of CO₂. The ABD calculated at the time that drivers were already paying around five times that amount through fuel duty. (A typical 2-litre petrol car emitting 191g/km CO₂ and averaging 34.9mpg would travel 5,236 km per tonne of CO₂, using 424 litres of petrol. With fuel duty and VAT of 56.8p per litre, fuel tax would amount to £240, more than five times Stern's recommended £44 per tonne.)
- So even if CO₂ emissions were a significant factor in causing climate change (which the ABD does not accept, since there is increasing weight of scientific evidence to the contrary), drivers are already paying far more in taxes than the economic cost of those emissions.
- Those who wish to apply a greater burden of taxation on road users are quick to point out the costs to society of road transport, while ignoring the massive benefits. With road transport the main mode for both passenger and freight movements, it is of vital importance to the national economy. There seems to be a lingering impression in some quarters, dating back to the first half of the twentieth century, that 'motoring' is a leisure activity for the wealthy. Such outdated thinking should be abandoned and the essential nature of road transport, to all sections of society, must be acknowledged.
- The purpose of taxes and charges
- The main purpose of road user taxation should be to cover the costs of improving and maintaining the road network. As already shown, taxation exceeds the level of investment in the road network by at least seven times.
- The failure to invest adequately in new capacity since the early 1990s is a major factor in today's levels of congestion. A much repeated claim is that building new roads or widening existing ones simply generates more traffic. But a study of historic traffic data shows that growth is related to the state of the economy, not the level of investment in the road network. Traffic levels fell in the recession of 1978-79, rose sharply in the second half of the 1980s, then stagnated from 1990 to 1993. Traffic growth resumed in the mid 1990s, even though this was a period of declining investment in the road network.
- Between 1994 and 2004 the total length of the UK's road network grew by less than one per cent, and the motorway network by less than 9 per cent. In the same period, traffic levels overall grew by 18 per cent and motorway traffic by 37 per cent, so there is clearly no correlation between road building and growth in traffic levels.
- Britain's motorway network, in relation to the size of its economy, is less than half as extensive as the average of the former EU-15 countries. The resulting congestion, unreliability of journey times, and extensive delays caused by road works and accidents have a serious impact on the economy and the prospects for economic growth. The failure to bypass towns and villages on major routes has also detracted from the environment and quality of life in those settlements as traffic levels have increased.
- There is a compelling case, therefore, to embark on a major programme of strategic road building and widening of existing routes, to reduce congestion and make Britain's road network fit for the purpose of enabling economic growth to match that of our competitors. Far from being environmentally damaging, well designed and constructed road schemes can reconcile the needs of the economy with those of the built and natural environment.
- Impacts on different categories of road user
- Road user taxes and charges fall almost entirely on users of motor vehicles. As already stated, high levels of road user taxation are regressive, impacting most on those with low incomes. Pensioners, rural dwellers, and people with disabilities, who may not have access to public transport or find it impractical to use, are particularly hard hit. This is clearly unfair.
- The ABD would ideally like to see a reduction in the burden of road user taxation and charging across the board. Alternatively, some form of discount scheme for particular groups, e.g. pensioners, might enable them to pay a reduced rate of fuel or vehicle excise duty, similar to the bus pass scheme.
- Alternative methods of charging for road use
- The ABD is strongly opposed to all forms of road pricing or congestion charging. Whether schemes are based on charging for entering a specific area at certain times (such as the Central London congestion charge) or monitoring vehicle movements across the entire network (such as the proposed national charging scheme), huge bureaucracies are required that would absorb a large part of any income generated. This has proved to be the case in London, where most of the income has been swallowed up by running costs.
- The London scheme has also failed to reduce congestion or improve air quality. Although traffic flows are slightly lower than before the scheme was introduced, Transport for London has admitted in its latest report that congestion has returned to pre-charging levels. This has been due to buses and taxis filling the road space previously used by cars, and the large discounts enjoyed by residents of the charging zone.
- A national road user charging scheme based on satellite tracking technology, with real-time information on every journey transmitted continuously to a central processing office, would amount to an unacceptable intrusion into the privacy of citizens. There is also no reason to believe that a national system would be any more effective in reducing congestion than the London scheme, while adding considerably to the financial burden on road users.
- There is some vagueness among the supporters of road user charging about what it is meant to achieve. Is it to influence drivers' choices of route and time of travel, in order to make more efficient use of the road network? Or is the intention to reduce traffic levels overall? If the intention is to encourage better use of the road network, it must be realised that congestion itself influences the choices that drivers make. People have different levels of tolerance to sitting in traffic jams, but there will be a point at which each individual will find another route, change their time of travel, go to another destination, or decide not to travel at all. This point comes when the value of the trip to the individual is exceeded by the perceived 'costs', which will not all be monetary.
- Congestion is to a large extent self-regulating, therefore, as a result of the sum total of the choices made by individual road users. Road user charging seeks to influence those choices. Drivers would be charged different rates per mile depending on the level of congestion on particular roads at different times of the day. It is important to consider how this might work in practice. Charges would be set initially on the basis of pre-existing congestion levels, with higher charges on the more congested roads. Some drivers would decide to switch to roads with lower charges, thus increasing traffic levels on those. (This also has road safety implications, as drivers are likely to divert from motorways to all-purpose roads, for example.)
- Consequently, the initial charging regime would change congestion levels across the network, so the charges would need to be recalculated. These new charges would lead to further traffic diversions, requiring the charges to be adjusted again. This iterative process could continue over a period of weeks or months, until a stable situation was achieved. In all likelihood this would be little different from the traffic pattern before charging commenced - but with the addition of a massive, intrusive and expensive bureaucracy.
- It is unrealistic to believe that road user charging could be introduced without an overall increase in taxation on drivers. To avoid a loss in overall revenue, the maximum reduction in existing taxes from which drivers could benefit would be equal to the net income from charging, after the costs of running the scheme had been deducted. So drivers would pay, at a minimum, the costs of operating the scheme, in addition to existing levels of motoring taxation.
- If the purpose of road pricing was to reduce traffic levels overall, the charges would have to be very high to produce any noticeable effect. The relatively small drop in traffic levels in summer 2008 resulting from the substantial increase in fuel prices is evidence of this. Since traffic levels are related to economic activity, forcing them down with punitive financial measures would have serious economic consequences, similar to those of a large increase in the price of oil.
- While the ABD considers road pricing to be unacceptable, it favours fuel duty as preferable to fixed charges like vehicle excise duty as the main method of charging for road use. The amount a driver pays in fuel duty is directly related to mileage covered and a vehicle's fuel consumption. It is simple to collect, very difficult to avoid, and requires no additional bureaucracy or intrusion into privacy. This does not mean, however, that the ABD favours an increase in fuel duty, which is already the highest in Europe. Overall levels of road user taxation are, as already shown, far higher than needed to pay for investment in the road network and cover external costs. Vehicle excise duty should be reduced or removed altogether
- Charging of foreign-registered vehicles
- The main area of concern with foreign-registered vehicles is the use of Britain's roads by European lorries. There are two main financial impacts resulting from these vehicles: physical damage to the structure of roads, and undermining the viability of Britain's road haulage industry.
- In an ideal, free European market, individual states should not charge for use of their roads by vehicles from other countries, as this use is reciprocal. There may be a case for some central European states charging lorries that are just passing through, since these lorries impose costs without providing any economic benefit to those countries. This is not the case with Britain, as the majority of foreign lorries have business here (apart from a small proportion in transit to the Irish Republic).
- Market conditions in the road haulage industry are distorted, however, by the much higher fuel costs in Britain than in other European countries. This is enabling foreign lorries to fill their tanks in Europe, and operate in Britain at lower cost than British operators. There is an urgent need to reduce fuel duty to the level of other European countries to enable British operators to compete on equal terms.