Will the tax trick work for trucks?

Wielding a fiscal stick isn’t the most effective way to cut freight pollution. That’s the conclusion of new research by Entec UK Ltd. Chris Ferrary reports.

In the government’s strategy for sustainable transport, John Prescott is clear that freight distribution supports economic growth. But he also says this should not be at the expense of the wider community and the environment.

So how shall this balance be achieved? Partly through broad-brush measures such as strategic planning, regulation on vehicle standards and markets, and partnerships to improve environmental performance. Top of the list, though, are fiscal sticks designed to promote transfer of freight to other modes, notably rail, and so reduce emissions of greenhouse gases and cut air pollution.

Meanwhile, in the other corner, stands the Road Haulage Association. It argues that the government needs to be more realistic about achieving these aims. At present, says the RHA, rail carries only about 6% of domestic freight. Even trebling the proportion going by rail would still mean 82% going by road. And, it adds, raising the costs of road freight is unlikely to have a significant impact on freight traffic without improvements in other areas. These might include major investment in rail infrastructure, appropriate priority to freight traffic on the railways, and a full and extensive study into the prospects for ‘intermodal’ or combined road and rail transport.

The RHA’s view is backed up by a recent survey commissioned by Entec. This found that most senior British business people do not believe that tightening environmental legislation will influence their profits. More specifically, on the subject of fuel and haulage taxation, only a third of those questioned stated that they have considered a change in their transport policy as a result of tighter rules, while almost twice that number have not considered any changes. This reflects the fact that transport is only a small element in the overall cost of production. If the government really wants to influence the way in which companies move their goods around, it is likely to be reputation and supply chain issues that will influence freight policy, rather than taxation.

In some areas where the government is seeking improvement, such as safety, fuel efficiency and reducing empty running, the road haulage industry has already made significant strides. But this has only happened where there has been a direct impact on costs, leading to competitive advantage for those who take action on those points. Introducing fiscal measures that increase costs across the board is a different matter, because these are unlikely to be sufficient in themselves to influence whether manufacturers and suppliers send their goods by road or rail. However, the downside could be catastrophic for some small hauliers. In an industry where 70% of firms have fewer than five vehicles, and only 5% turn over more than £1 million, small changes at the margins can mean life or death for the individual operator.

The real driving force for change is likely to come from the continued competitiveness within the haulage industry. As costs and margins are squeezed to the maximum, competitive advantage in the future is more likely to come from better customer service - and it’s this aspect that may very well raise the importance of green credentials for hauliers, since many major purchasers are now stipulating environmental thresholds as a condition for winning contracts.

In this respect, it will be the few big operators, such as NFC or Tibbett & Britten, that will show the way. Encouraging them towards environmental excellence, having them set an example to the industry, is likely to be more effective for the government in the long term than wielding a big, but environmentally less effective, tax stick.

Chris Ferrary is a director with Entec UK Ltd based in London.