HC Deb 11 November 1998 vol 319 cc342-9 1.30 pm
Mr. Owen Paterson (North Shropshire)

I thank your office, Mr. Deputy Speaker, and the two Departments involved, for co-operating on the change of title for this debate so that a Treasury Minister could respond to it.

We have a strategic industry that is in real crisis: 95 per cent. of all freight is moved by road—in a rural area such as my constituency, the figure is as high as 97 per cent.—and there is no real alternative for the foreseeable future. The most optimistic estimates suggest that, even if the huge projected investment in rail freight for the next 10 years were to materialise, that would only double the rail share, from 5 to 11 per cent. Road would continue to expand and would probably hold steady at about 90 per cent. of freight transport.

Our whole economy depends on maintaining an efficient road haulage industry. No business —or family—does not use goods that were moved at some stage by road. There is not an hon. Member here today who is not wearing clothing or who has not eaten food in the Tea Room that was carried at some stage by a diesel-powered vehicle. The average Sainsbury store has 23,000 items, all carried by road.

There are 420,000 commercial vehicles of more than 3.5 tonnes in the United Kingdom and they move more than 1.6 billion tonnes of goods, yet the future of the 65,000 road haulage businesses is in jeopardy. By 2002, the current crisis may have caused 26,000 job losses, and a loss to gross domestic product of £1.5 billion and to the Treasury of £1 billion; and the Government are entirely to blame. One of the few remaining areas of taxation over which each nation state in the European Union has retained 100 per cent. of its decision-making powers is the setting of fuel and vehicle excise duty.

The Government are using their power in a bizarre manner, actively putting a strategic industry at a massive disadvantage. The fuel duty escalator was introduced in 1993, in response to the Rio commitment to reduce greenhouse gas emissions. It was originally set at the retail price index plus 3 per cent., but the Labour Government increased it to RPI plus 6 per cent. in 1997, adding a further gratuitous 1p per litre on diesel in the 1998 Budget.

The House of Commons Library calculates that Labour has added £9 billion of extra fuel duties during this Parliament. The escalator on diesel and petrol this year gave more to the Treasury than 1p on income tax would have done. By 2002, the policy will cost the haulage industry £5 billion a year.

Ninety-nine per cent. of lorries are diesel-fuelled, and fuel represents a minimum of 30 per cent. of the operating costs of running a lorry. According to the Library, 82 per cent. of the price of fuel in the United Kingdom is taxation. Each 38-tonne vehicle pays £22,000 a year in tax. There is a widening gap between the UK and our continental competitors. Excluding VAT, UK diesel costs about 56p a litre, of which duty is 44.99p; in France, it costs 35p a litre, of which duty is only 24.57p. The 21p a litre—or 95p a gallon—difference means that to fill a truck with two tanks, which takes 1,200 litres, costs £252 more in the UK than in France. The comparisons with Benelux and Germany are even worse. My constituents are in desperate trouble. Dale Roberts, from Morda, wrote to me and said: The 5.5p per litre increase on diesel is slowly but surely strangling the industry as there is no way in which we can claim this increase back. Our customers are in much the same situation as ourselves with an appalling cashflow problem. Unless something is done, and soon, the haulage industry of this country will be in a decline from which it will find it very hard to crawl back. Mr. Jagger, from Pentre, who handles timber—notably, he took the timber down to St. George's hall for the restoration of Windsor castle—wrote to me in July. He said: At this present and proposed taxation, it is going to become impossible to continue to operate to an acceptable standard. Unless the Government comes to its senses many good hauliers will go to the wall with many people losing their jobs.

There is even worse—possibly much worse—to come. Vehicle excise duty on a 38-tonne truck costs £3,210 in the UK; only £459 in France; and a mere £296 in Spain. A typical international haulier in the UK, running 50 trucks, was £150,000 worse off than his Spanish competitor before he even got out of bed on 1 January this year; yet the Chancellor has already said that he has plans to make new heavier lorries subject to even higher rates, to discourage their use.

Andrew Wishart, in Kirkcaldy, has 16 trucks and has told me that, if the four-by-two-axle VED goes up to the rumoured level of £7,000 to £9,000, he will move abroad. He transports car parts and telecommunications parts to eastern and southern Europe, so he drives through Belgium, and he is already taking steps to set up a base and an office in Belgium.

Mr. John Hayes (South Holland and The Deepings)

My hon. Friend is understating the case, as all this is happening in the context of an agricultural economy in decline. Many haulage firms are based in rural areas such as my constituency and his, and they are already facing other problems. The burden of extra duty comes on top of an agricultural and rural crisis.

Mr. Paterson

As always, my hon. Friend is spot on. I was about to cite the case of a haulier who transports lambs from Carlisle to Newtown and now has to pay an extra £60 for each load. That is an extra burden on the sheep industry, which is in real crisis, as my hon. Friend and I are well aware.

Eddie Stobart's name will be familiar to most hon. Members from his 800 very smart red and green lorries. He employs about 2,500 people. If he moved to France today, he would save £2.2 million on VED alone. If the proposed hike on heavier vehicles goes through, it will be even worse. Yesterday, he said to me on the telephone, "Unless the Government sees sense on fuel and VED, I will have actively to consider cheaper alternatives to running my business based in the UK."

That is a major worry for me, because distribution is a major business in North Shropshire. It is run by the entrepreneurs whom the Government lecture us that we should have: the people who have built up businesses from nothing. The Woodward family in Oswestry began importing sausages in the back of their car, and kept them in their garage; in recent years, they have invested £15 million in a state-of-the-art distribution centre and they have 89 trucks.

Mr. Christopher Gill (Ludlow)

May I instance another Shropshire business, owned by Mr. Owen of Lydbury North who tells me that, of a fuel bill last year of £28,500, £24,795—no less—was duty?

Mr. Paterson

As always, my hon. Friend has his feet on the ground and knows what is going on.

The increases cannot be passed on. Nigel Woodward told me that he cannot get any increase from his customers. The Penton family, down the road from the Woodwards, have invested £12 million. According to Andrew Penton, they are seriously considering flagging out, and sthey have slowed their expansion plans here. The only relief on VED is the £500 allowance offered by the Government to encourage vehicles to be fitted with particulate traps, enabling them to use low-sulphur diesel. That sounds a good idea, but the conversion kits alone cost £3,500; low-sulphur diesel is extremely hard to find; when one eventually finds it, it is more expensive than conventional diesel; and, unbelievably, it is 5 per cent. less efficient than ordinary diesel. Not surprisingly, I have yet to find a haulier who is tempted by the Government's kind offer.

For the time being, the Government are milking rewards from the policy, but the long-term consequences for Government revenue are serious. I talked last week to an international haulier based in Kettering who deals exclusively with Italy and Spain. He has not filled up one of his 20 trucks in the United Kingdom in the past 18 months. By 2002, more than £1 billion of tax revenue will be lost to the Exchequer from fuel being purchased abroad. Smuggling across the Irish border is rampant—it is estimated to cost between £ 100 million and £150 million. We do not know the exact figure, because the Government do not care. They are happy to lecture the workers of Rover on the need to be more efficient, but when my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) asked about the extent of cross-border smuggling, the Economic Secretary replied, in a written answer: HM Customs and Excise have no estimates for the revenue lost to the Exchequer through these activities."—[Official Report, 22 October 1998; Vol. 317, c. 1201.]

One way in which the Government could raise revenue is through tolls. British trucks running through the Benelux countries and Germany pay £4.20 a day for a vignette and, as we know, autoroute tolls in France and Italy are even higher. A truck last week running from Calais to Mont Blanc paid £95 for the one-way trip. Vehicle excise duty is adjusted in those countries to allow for the tolls, but the House of Commons Library has told me that 600,000 foreign-registered goods vehicles left the UK for mainland Europe in 1997. The industry feels bitter that no charge is levied on such trucks, which can come here when they like. They can be any weight and put out any kind of pollution. The Government intend to penalise heavy trucks, but not if they come from Europe.

As a free trader, I welcomed the arrival of cabotage on 1 July, which enabled the free movement of goods within the European Union by any European Union haulier, but that is no good if the game is rigged against the UK haulier. French trucks with a range of 1,200 to 1,300 miles can easily reach Shropshire and clock up 600 miles of profitable business before returning to Calais to fuel up and take advantage of cheaper VED under the more sensible regime of the French Government. My constituent, Martin Edge, said today: We welcome competition, but it must be fair. Our current position is disastrous. A further, sinister implication arises from information I learned from a haulier in Lincoln last week, who already has six vehicles registered in France. He said: There is a significant difference in the quality of the annual MOT test. Here in the UK it is rigorous and it is right that it should be. By comparison French MOT test standards are lower across the board. The brake test is a complete joke.

A proud, successful industry has been brought to its knees because the Government believe that they have found a source of revenue that will not bite back. I have been in correspondence with the Financial Secretary since April. The replies have been as complacent and lacking in understanding and information as they have been late in arriving. My letter of 20 July, which enclosed a letter from Billy Griffiths, a major local employer, received a reply only on 24 September.

The Minister stated: I am sorry for the delay in replying. This is due to parliamentary recess. In a parliamentary recess, Ministers do not have tiresome Back Benchers such as myself calling them to Parliament to answer Adjournment debates. If a business were run so incompetently, it would have gone bust long ago. My requests to bring a delegation to meet the Minister have been constantly refused, but the presence at Westminster today of hundreds of truckers— who have come from Bury St. Edmunds, Shropshire, the south-west of England and many other places—testifies that they must win on the issue to survive. They must also win on behalf of every business in the land, because they are all made less competitive by the policy. Transport represents up to 10 per cent. of the price of many manufactured goods and 12 to 13 per cent. of retail distribution costs.

The whole economy is being damaged, and I shall give one example. Ten years ago, a site in Market Drayton was a green field. Today, it is a state-of-the-art plant making yoghurt for Mullers from 100 million litres of milk. Every one of those litres is taken there by a diesel-powered truck and every yoghurt pot is taken away by a diesel truck. That magnificent — 60 million investment is a tribute to the policies that Conservative Governments introduced and to the work force of Market Drayton. It is a real success story and the Minister can enjoy the product in the Tea Room afterwards. However, I talked to the managing director this morning and he said: We are unable to pass on any of the increases in transport costs to our customers. Considering the huge investment, this is bitterly disappointing.

The intention of the policy is to improve air quality, but it will not do so. British hauliers will be forced to put off purchasing new, more efficient equipment and more work will be done by heavier, less-well-maintained and cared-for foreign trucks. The pollution will stay, but the polluter will not pay. New Labour claims to understand business. If that were true, the Labour Benches would be full. New Labours talks about productivity and global competition, but it has the power to change this policy. It is stupid and is damaging a key strategic industry, not to mention the whole economy.

I would like the Minister to answer two simple questions. Will she let me bring a delegation from the industry to see her before the Budget? Will she agree today to freeze any further increases in VED and fuel duty?

1.45 pm
The Economic Secretary to the Treasury (Ms Patricia Hewitt)

I understand the passion that the hon. Member for North Shropshire (Mr. Paterson) brings to the debate, but I regret the fact that he did not mention the environmental considerations that stand behind the policy—[HON. MEMBERS: "Yes, he did."' He paid almost no attention to those considerations and he paid no attention to the range of policies, which I am about to outline for him, that are designed to help the road haulage industry achieve our objective and theirs—to promote a British haulage industry that is sustainable, efficient and effective, and that also meets our environmental and social objectives.

Contrary to the implication in the hon. Gentleman's remarks, the industry has responded favourably to the approach to sustainable distribution that we set out in our White Paper, "A New Deal for Transport". For example, the industry has welcomed the fact that 40-tonne, five-axle lorries will be allowed for domestic use as well as for international movements, as we are obliged to do under European Union legislation. Those vehicles are no larger than existing 38-tonne vehicles. The industry has also endorsed our intention to improve enforcement in the industry through improvements in the efficiency of the enforcement agencies. We will ensure, for instance, that we get modern information technology systems into those agencies, which will allow much better co-ordination and sharing of data.

We have also heard from the industry an endorsement of our intention to impound illegally operated vehicles used by cowboy operators. The industry has been constructive in helping us to formulate those proposals, which will help to ensure that hauliers in the UK operate in a competitive regime, which is fair and honest. In the White Paper, we also stated that we will improve the service offered by trunk roads, by improving network control and traffic management. By maintaining and managing the existing road network better, we will reduce delays and improve the efficiency of the industry. All of us have wasted precious time sitting on crowded roads and seen necessary distribution vehicles also stuck in those queues. We will also introduce legislation to allow local authorities to charge road users to help to reduce congestion. That will benefit the haulage industry, because reduced congestion will lead to improved delivery time, efficiency and profitability.

We have also stated our intention to support the industry in promoting best practice, through quality partnerships and the Road Haulage Association's "Well Driven" scheme, which I and, I am sure, many other hon. Members have noticed increasingly on our roads. We intend to promote an industry that will support the country's economic growth and, at the same time, meet environmental objectives. We are committed to achieving the United Kingdom's share of the European Union target agreed at Kyoto to cut greenhouse gas emissions by 8 per cent. by 2008–12. All motorists need to make a contribution to achieving that target. It is estimated that the road fuel duty escalator, if continued at its current level from 1996 until 2002, will save between 2 million and 5 million tonnes of carbon annually by 2010.

The hon. Member for North Shropshire expressed with great force his concern, and that of his constituents and many in the industry, about diesel price increases and changes to vehicle excise duty. Of course we know that increased fuel duties and VED impact on the costs facing the road transport industry and hauliers, but we believe that the cost of using lorries must fully reflect the cost that they impose, including environmental costs. I am surprised that Conservative Members, who are free traders and free marketers who should understand the need to incorporate environmental costs into accurate pricing, do not apply it to this industry.

Mr. John Townend (East Yorkshire)

Will the Minister deal with the problem at the core of the debate? How do the Government intend to tackle the problem of the level playing field? How are we going to stop British hauliers moving to France or Belgium? What do all the things that she says that she has done for the industry amount to in cash terms, compared with the extra burden so eloquently described by my hon. Friend the Member for North Shropshire (Mr. Paterson)?

Ms Hewitt

Happily, I was just coming to that point.

We are conscious of the impact of higher fuel taxation and VED on competitiveness and profitability, but it needs to be put into a wider context. The United Kingdom has lower corporation taxes, lower employment taxes and lower social costs than other European Union countries, especially with my right hon. Friend the Chancellor's recent Budget measures to assist small businesses. The overall tax burden is lower in the United Kingdom than in our major EU competitors and lower than the averages for the EU and the Organisation for Economic Co-operation and Development. [Interruption.]

Mr. Deputy Speaker (Mr. Michael J. Martin)

Order. The hon. Member for East Yorkshire (Mr. Townend) may not want to listen to the Minister but I do, so I must be able to hear her.

Ms Hewitt

Not only is the overall burden of taxation lower on British businesses— including the road haulage industry—than on European businesses, but, looking at business as a whole, transport is a relatively small part of total business costs.

Mr. Gill

Will the Minister give way?

Ms Hewitt

No. I have already given way and would like to make some progress. Tax measures that we have recently introduced, or will introduce, to help road hauliers include the freezing of the standard VED rates for lorries. That means that lorry drivers are paying less VED in real terms than they were in 1990, and that partly offsets the impact of higher fuel duty and should help to maintain the competitive position of our road hauliers. A reduction of up to £500 in VED for low-emission lorries and buses will be introduced at the end of this year. There is also the freeze in duty on road fuel gases and the widened differential that we will maintain and, I hope, increase, in favour of ultra-low-sulphur diesel.

There were broader measures in the Budget that will benefit business and road hauliers: the 1 per cent. cut in the main rate of corporation tax; the 1 per cent. cut in the small companies rate of corporation tax, which next April will be down to 20 per cent; the introduction of quarterly payments for large companies, replacing advance corporation tax; the extension of enhanced temporary first year capital allowances; and the introduction of the taper to reduce the capital gains tax on assets held for longer periods, which is equivalent to a higher tax rate of 10 per cent. after 10 years on business assets.

Mr. Paterson

The Minister is getting on to the second page of the letters that I had from the Financial Secretary. We have been through all this; it is irrelevant to the items that I raised. She mentioned the environment, but why have not other European countries imposed a fuel escalator if it is such a good idea? They signed up to Kyoto. She talks about the contribution of the industry to the environment, but £30 billion is taken from road users while only £2 billion is spent on roads.

Ms Hewitt

The point of environmental taxation is to internalise the external costs imposed, in this case by road users, in the prices that they are charged, not necessarily to return the product of that revenue directly to them. Several EU member states, including the new German Government, are considering carefully proposals for carbon tax and energy tax. There are proposals at European level for an energy tax, which we will consider carefully.

Hon. Members raised the matter of competition from abroad. Despite what has been said, there is little evidence of foreign hauliers undercutting domestic hauliers for business in the United Kingdom.

Mr. Paterson

The Gallery is laughing.

Mr. Deputy Speaker

Order. The hon. Gentleman has mentioned the Gallery twice, which is outwith the rules of the House. He should not do it.

Ms Hewitt

The fact is that less than 0.04 per cent. UK road miles are done by foreign hauliers. The long-term outlook for the industry in this country suggests that lorry traffic is expected to grow by more than 60 per cent. in the next 20 years, an enormous growth in that sector of the economy. That makes it imperative that the Government ensure, by effective use of taxation, that the lorries on the road are the most fuel efficient and environmentally friendly available.

Under EU legislation—I think that the hon. Member for North Shropshire welcomed this—hauliers are free to set up business anywhere in the European Union. That is a commercial decision for the businesses involved. Let me remind him that many other factors are involved besides the prospect of cheaper vehicle licence or fuel tax: the setting up costs; the burden of obtaining an operator's licence; higher drivers' wages; considerably higher social costs; higher corporation tax rates—and so on. Setting up a business on the continent has all those obvious costs. When all taxation is taken into account, the burden on business in the United Kingdom is lower than in other European Union states. Any British haulier who decided to set up in France or Belgium might find that road fuel taxes went down, but would certainly find that his social costs and wages bill went up. It is not surprising, when one considers the overall burden on business, that there have also been reports in the trade press of French hauliers registering their businesses in the United Kingdom to take advantage of lower business costs and the opportunities to grow their businesses.

The hon. Member for North Shropshire suggested that environmental taxes are simply an excuse for revenue raising. That is not the case. We are developing environmental taxes in line with the statement of intent on environmental taxation and with a vital principle both of market economics and of environmental concerns: prices should reflect true costs so that the polluter pays. Fuel duty increases are important to encourage further improvements in fuel efficiency and reductions in carbon dioxide emissions. Our spending is directed towards the people's priorities of education and health, from which everyone benefits, but also to increased spending on rural transport, which, as I hope that he agrees, will be of particular benefit to rural communities.

The hon. Member for North Shropshire raised specific questions about ultra-low-sulphur diesel. The early signs are that supermarkets will be able to sell ordinary and ultra-low-sulphur diesel at the same price, so UK refiners should be able to compete. In any case, we envisage altering the duty differential further in favour of ULSD. We believe that increased duty differential will further encourage the manufacture and use of the fuel. We need to look many years ahead, because ULSD offers substantial benefits to the quality of urban areas by reducing the amount of nitrogen oxide, black smoke and particulates produced during combustion. I know from my constituents how much concern there is not only about global warming, but about local air quality, because local pollution is one of the causes of the disturbing increase in asthma among children. I hope that all hon. Members would wish to take account of that.

The hon. Member for North Shropshire referred with concern to his correspondence with my hon. Friend the Financial Secretary—

It being Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.

Sitting suspended, pursuant to Standing Order No. 10 (Wednesday sittings), till half-past Two o'clock.