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With the UK barely registering economic growth and business organisations offering nothing but gloomy forecasts, the government needs to be more decisive than ever to get Britain out of the doldrums. James Hookham of the Freight Transport Association explains why a governmental policy of above-inflation fuel duty rises could do more harm than good

A decidedly glacial economic recovery coupled with gloomy forecasts from the likes of the Bank of England and the IMF which suggest that things aren’t going to improve anytime soon has left the UK government facing a dilemma: how high can we extract tax from industry without doing it irreparable harm. This may sound like a melodramatic simplification of fiscal policy, but the implications of over-taxing an already stretched business sector could be disastrous. And not just to the logistics sector but the hundreds of thousands of companies that rely on it who then contribute to Treasury coffers.

Industry succeeded in winning some much-needed breathing space for hard-pressed hauliers in the last Budget with the deferral of the planned 5 pence per litre fuel duty rise, and instead a reduction in fuel duty of 1ppl. However, since then the £625m this effectively saved the logistics sector has been overshadowed by rising fuel costs amounting to an extra £1.3billion over 12 months .

A generally reliable ‘logistics’ maxim is ‘if you’ve got it, it came in a truck’, meaning that from pan-european trunking to final mile deliveries, road transport is an essential keystone of our business and, indeed, our society. As well as keeping our shelves stocked, the logistics sector allows the manufacturing industry to manufacture, the building sector to build and our public services to serve.

Another truism is that ‘trucks don’t run on fresh air’; the impact of increasing input costs on a sector which has no choice but to buy diesel is pretty bleak: either absorb these costs at the expense of your own growth (including your investment in new, cleaner engines), or pass on the additional costs to the customer, thereby risk losing your competitive edge and help fuel inflation in the process. Some costs cannot be transferred on to customers; it is a competitive marketplace and competitors may offer lower prices at their own risk, simply to take the business. After all, it’s either pick one of the above or go out of business, and you don’t have to be George Osborne to realise that none of these outcomes are good news for UK plc.

We know the government can’t control the effect of speculation on the oil market, nor can it guarantee the availability of oil supply from politically volatile countries or ramped up demand from emerging economies. But it can remove a lot of the sting felt by British industry by deferring the duty increases planned for January and making further cuts in duty rates now. The harsh reality is that industry is still reeling from the worst of the recession, where insolvencies in the logistics sector doubled and HGV drivers joined the dole queues in their droves. The pressure of further fuel duty rises will be an inevitable tipping point for the next tranche of companies desperately trying to operate the trucks which are needed to keep the economy moving but which cost too much to run. The stark decision faced by the government seems to be: abandon planned fuel duty rises or further risk re-igniting economic growth.

 

<span style="font-size: 12pt; font-family: " New="New" Roman","="Roman","">[1] Figures from the Freight Transport Association’s Cost Information Service show a 12ppl rise in the cost of diesel (excl. VAT) – from 99.29ppl in July 2010 to 111.21ppl in July 2011 – which for hauliers means an additional £5,700 to fuel just one 44-tonne truck.



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Written by James Hookham   
Monday, 15 August 2011 09:18
 

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