£325m additional fuel tax bill is out of touch with struggling logistics sector, FTA warns Chancellor

Friday 25 November 2011

The Freight Transport Association is warning the Chancellor against pressing ahead with a 3 pence per litre fuel duty increase from 1 January next year. FTA's latest Quarterly Transport Activity Survey shows that operators are more downbeat about business activity and freight volumes than at any time for the past two years. As well as facing weak levels of demand, operators must deal with near record diesel prices, which are close to the all time highs seen in April this year. At that time the Chancellor took the decision to cut road fuel duty by 1 pence per litre (ppl), recognising that the cost of fuel is a very difficult issue and a concern to many families and businesses across the country. If the Chancellor goes ahead with the fuel duty rise planned for January it will land industry with an annual bill of £325 million. This would lead to more redundancies, and more businesses pushed into financial difficulties, further damaging the economy.

Despite the welcome decision by the Government to cut fuel duty by 1 pence per litre earlier in the year, a haulier operating ten lorries will have seen its annual fuel costs increase by £65,000 in the last year. With a planned 3.02ppl rise scheduled for January and a further rise planned for August, this would heap at least a further £23,000 of cost on such a business in 2012.

Simon Chapman, FTA's Chief Economist, said:

"With the economy stalled, the imperative for the Chancellor is to get the wheels of industry turning once more. Industry relies on diesel to move goods around the country, with diesel costs representing over a third of the costs of transport. A hike in duty at this time leaves carriers with nowhere to go. Higher costs can't be passed on to customers, who are looking to reduce costs to offset lower levels of business activity. Nor will rate rises wash with consumers, whose disposable income has been progressively eroded by the steady rise in inflation. Trading conditions are still incredibly tough, especially for an industry with typically tight profit margins, and it simply doesn’t make sense for Government to make things tougher."

The price of diesel has risen by over 13ppl (13.9 per cent) in the last year, representing an additional cost to the road freight operating industry of £1.4 billion.

Overall, commercial vehicle operating costs have risen by 6.2 per cent in the year while over the same period haulage rates have risen by 4.5 per cent. As a result, profit margins, which are typically less than three per cent in the haulage sector, have been under significant pressure.

Chapman concluded:

"Business understands the need for the Government to balance the books of the public accounts. However, the planned January rise would be an ill-judged triumph of short-term gain over long-term pain. Industry will have no option but to look to 2012 as a further year of retrenchment. That means scaling back on capital investment, putting further downward pressure on real-term pay levels and laying staff off where business volumes are simply not there.

"As partners in the Fair Fuel UK Campaign, we have amassed massive public and commercial support for a fairer deal on fuel duty. The Chancellor's Autumn Statement must encourage growth, support employment and alleviate pressure on businesses by committing to a fuel duty freeze throughout 2012."

Notes for editors

Based on a mixture of pump price (20%) and bulk price (80%) diesel (excl. VAT) has risen 13.7ppl, from 98.75ppl in October 2010 to 112.44ppl in October 2011. This is a 13.9 per cent increase and equates to a total cost to industry of £1.47bn.

Fuel duty represents 51 per cent of the cost of a litre of bulk diesel (excl. VAT) as at 25 November 2011.

For further information please contact:

Simon Chapman, FTA’s Chief Economist, on 07818 450504 or 01892 552274.

FTA’s media team can be contacted on 01892 552255/01892 552253 or, out of hours, on 07818 450425.

FTA Press Office

01892 552255
press.office@fta.co.uk