Thursday, May 29, 2008

Lorries protest fuel tax

Thousands of lorries blockaded streets around London this week, most notably parking on the A40 Westway (one of the short pieces of incomplete motorway scattered round London) reducing it to one lane. The reason? Fuel prices.

You see in the UK governments have for some years regarded the road transport sector as a light touch for taxation. Fuel taxes have been increased year on year to match inflation, and absolutely none of it is dedicated to roads. They are taxes, pure and simple. As a result UK fuel taxes are the highest in Europe. The reason for the high taxes?

  1. Fuel tax is easy to collect and hard to evade (although having different coloured fuel for road and offroad use with different taxes is a problem);
  2. Increasing fuel tax looks like it’s environmentally friendly, although if the fuel tax was only charging for CO2 emissions it would be far lower, and it does not reflect exposure to emissions. You pay the same whether you drive round the Highlands of Scotland or if you drive in suburban London;
  3. Increasing fuel tax has a modest effect on congestion by keeping the cost of using cars up. However, given this has paralleled a paucity of road building, the UK now has the second highest levels of road congestion in Europe.

Fuel tax in the UK is 50.35p per litre for both petrol and diesel. To put that in context this is NZ$1.27 per litre in fuel tax alone, before VAT of 17.5%. In NZ petrol tax is NZ$0.42524 per litre before GST, ACC levy and a couple of minor other taxes.

One problem faced by trucking companies (road hauliers as they are called in the UK) is that trucks from continental Europe enter the UK with large fuel tanks full of diesel taxed at lower rates. So there is unfair competition.

The UK government twice looked at measures to address this, but doesn’t know how many foreign trucks enter the UK. It looked at an electronic distance based charge for all heavy vehicles and rejected it, and then looked at the vignette system, commonly used in Europe, whereby foreign vehicles buy a licence to operate for a certain number of days in the UK and are checked at the “border”.

So what SHOULD it do? First it should define why it is taxing fuel at all. If it is about paying for roads then part of the tax should be dedicated to funding roads (and there should be an independent non-political funding agency set up to manage that). The UK Treasury hates hypothecation because it fears waste, and loses control, but it has worked in New Zealand for many years. Indeed NZ is seen in some quarters as a model for how to manage road funding (shows you how bad the rest of the world is). If the tax is environmental, then have an honest debate about why, how effective it is and how fair it is at all? If it is revenue, be honest that road transport is being pillaged to fund social welfare and education, and see how the public taks that.

Sadly the UK is stuck in a bureaucratic arrogance that “nobody else in the world does it better” and wouldn’t look to NZ, or even to France and Italy which run motorways as private and government run businesses (with tolls). It taxes bluntly, it runs roads as political driven bureaucracies and decides road funding on a loose economic appraisal approach, whilst funding roads barely higher than it subsidises rail transport. The cost this underfunding of roads and blunt overtaxing of road users upon the UK is considerable, and it hides the true cost of the UK leviathan state – as it keeps income taxes down. It’s about time this was reversed and road use was charged on an economically efficient basis.

Tax on fuel is only justified as a transition to proper road pricing. It should be capped, roads should be privatised, and motorists able to contract with road providers for road use, and opt out of paying fuel tax in exchange. It is technically feasible, the problem is the political instransigence that treats roads as special. Roads are a network that needs maintenance and investment, and provide an economic good. Is it any wonder people complain about them when their management is subject to the appalling incentives of politics and bureaucracy, rather than investors, producers and consumers.

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