Tuesday, April 15, 2014

Logistics versus Environment as Treasury Fuel Report Pleases Freight and Road Haulage Lobby

Government Satisfies Motorists but Alienates Green Interests
Shipping News Feature

UK – The Treasury Report issued this week which concludes that a reduction in fuel duty can benefit the economy has met with two very different polarised reactions from logistics and environmental groups. The Road Haulage Association (RHA) said that it welcomed the Chancellor’s announcement and the report echoed a study which it funded two years ago on behalf of the FairFuelUK campaign alliance undertaken by the National Institute of Economic and Social Research (NIESR). The Freight Transport Association (FTA) stated the report confirmed something it had been telling government ‘for a very long time’.

Both groups have been long term backers of FairFuelUK which the FTA says has been instrumental in stopping £30 billion in tax hikes for road users in its three year campaign and that it is pleased that the government has ‘caught-up’ with the impact it will have. The Association had estimated that every penny of fuel duty costs commercial vehicle operators £116 million a year, and stated that reducing road fuel duty would ease cost pressure on businesses operating commercial vehicles and stimulate economic growth.

The FTA says the Treasury report concludes that halting the tax rises will boost the economy by up to £7.5 billion over 20 years, as extra activity would mean that the government would recover around half of the initial lost revenue. This result was apparently obtained by a method called 'dynamic modelling' to calculate the wider economic effects of keeping fuel duty down with the result that gross domestic product would rise by the estimated amount. RHA Director of Policy, Jack Semple commented:

“The important thing to ensure now is that this economic and tax reality becomes imbedded as core Treasury and political thinking as we look ahead to the next Parliament.”

The FTA believes that the battle to reduce the tax burden on the country’s hauliers is not yet over and that British rates of fuel duty remain the highest in Europe with the case for them being brought in line now overwhelming. Theo de Pencier, FTA Chief Executive said:

"The FTA is pleased that the Treasury has accepted our key arguments that fuel duty can be cut without harming the economy. From the conclusions in this report today, it does appear as though the Chancellor has caught-up with our findings, and there is now every chance for him to go further and boost growth by cutting 3 pence per litre from current rates.”

The reaction from the environmental lobby has been diametrically opposed to that of the logistics community representatives. Early in the life of this coalition government the Treasury was accused of washing its hands of its commitment to green policies by changing the definition of ‘environmental taxes’ saying to be described as such they must have environmental behaviour change as their primary objective, neatly side lining air passenger duty, fuel taxes etc. as these have an environmental effect secondary to their main objective.

Now campaigners point out that factors such as congestion, air quality and carbon emissions have apparently been sacrificed on the altar of commerce. The model which the government used in this study, as in a previous report on corporation tax reduction which showed a benefit economically, is called the Computable General Equilibrium (CGE). This uses tens of thousands of computations to attempt to model how policy decisions such as these affect overall macroeconomic results.

By its own admission the Treasury concedes that CGE does not take into account of every factor but the debate will never satisfy both parties and, with an election looming and the state of the economy uppermost in the governments mind, it seems the pressure applied on behalf of both private and commercial motorists have won the day, at least for the time being.