The current government’s fiscal policy

In the autumn of 2000 there were a series of Fuel protests culminating into a blockage of fuel supplies from major depots across the country. Although the protests came from the public and business the whole affair was initiated by the Haulage industry which suggested that the fuel price escalator was crippling their industry sending many small private firms out of business. It is fair to say that in the UK the rail and air networks are not developed enough to compete with road haulage for most commodities.

With the fuel price being roughly the same throughout the country UK firms are not particularly disadvantaged as the market is relatively inelastic because of the lack of suitable competition can therefore pass most of the additional tax onto the customer. However because the UK is part of the European Economic Zone no tariffs or barriers can be put in place to protect the UK Haulage Industry from European firms, because of the developed trade links with Europe UK firms have to compete with foreign firms on long-haul European journeys.

Many haulage firms have sighted this competition and the high rate of tax on Fuel as the reason for reduced profits or bankrupt businesses in the industry which employs 1. 2m people with roughly 500,000 of those being HGV drivers. The claim that it is the current Government's fiscal policy is damaging, if not destroying their industry is obviously going to be exaggerated and bias as it should not be assumed that the Haulage lobby is impartial.

Here we want to assess that trueness of this statement, this can be done by evaluating all possible factors that could have caused the reduction in the number of road haulage firms, and assessing whether these factors played a bigger part than the Government's fiscal policy. Could it be that Rail and Air have become more competitive? Is it simply that UK Haulage firms are uncompetitive and the free market is naturally killing them off – are the inefficient, or are EU firms becoming more efficient? If efficiency if the issue is the industry simply after protection?

Does the trend of road haulage follow the state of the economy? All these questions need to be addressed by isolating factors which have not applied to this specific case study and weighting those factors which have caused an effect. Comparing Fiscal Policies The fiscal policy relates to the tax situation, If UK firms cannot compete with EU firms it must be assumed that taxes are a lot higher than that of European nations. Haulage firms at the moment have no industry specific tax breaks (e. g. Farmers and V. A. T free fuel).

The table below contains comparative figures for the major costs to a haulage firm in the UK and France. We can see from this table that France, a European nation similar to the UK has allowed for French haulage firms to have a comparative advantage because fuel and excise duties are lower. The issue of Road Tolls is to be taken on context. For domestic logistics foreign firms cannot compete because the UK is an island and therefore they have to get the Lorries over here, ferry and channel tunnel fairs become restrictive and UK firms are able to exploit their comparative advantage of location.

For European journeys both nations firms have to make two water crossings and so neither have an advantage. As both firms need to make the same journey road tolls will be equal. The fourth cost in the table is Labour Taxes, French taxes are twice as high as UK taxes, here the UK has an advantage if its assumed that French an UK workers have the same wage and efficiency rate. (This is not necessarily true, this topic will be taken up later). These four areas are part of the costs of the firm delivering its product: transportation of a product or commodity.

We can see here that the costs for a French firm are considerably lower than that of a UK firm as the huge difference in Fuel and excise duty more than compensates for the higher Labour Taxes. The end result is that from these figures we can reasonably assume that it costs more per mile to run a French based and registered Lorry than it does a British based and registered Lorry. Corporation taxes in France may be 50% higher than that in the UK, but this tax comes from the profit margin of a firm rather than a fixed cost and therefore will not hinder the French firm's ability to compete in the Short Run.

It must be considered that the reduced profit margin will not allow for as much investment in the long run, thus conveying a disadvantage in the Long Run. For the Industry to be able to back up this claim it must be shown that the costs of running a Lorry have increased since the current Government came to power in 1997. Otherwise if taxes have been traditionally higher than continental countries it cannot be assumed that it has been taxes that have been crippling firms as previous to the last 5-6 years haulage firms have been able to compete with foreign firms in the post 1992 era.

The table below tracks UK Fuel costs against that of other European Countries It is true to say that taxes have been rising, the cost of fuel has increased considerably. Typically 1/3 of a companies cost is wages (34% Dennis Dixon Ltd) and 25% fuel (26% Dennis Dixon) this major proportion of the costs rising constantly over a sustained period of time is clearly something which would have adverse effects on the industry. The fiscal policy is such that it could said that firms are being unnecessarily restricted compared to their European counterparts.

Of the 12000 firms that have disappeared since 1997 it is correct to assume that many of these will have been casualties of the higher taxes, which mean that they cannot compete with foreign firms with lower costs. It is possible to say that this taxation regime may not be directed specifically at the haulage industry but more of a general policy of trying to account for negative externalities that are created by transport, or a more cynical person may suggest to bulk up the Government's coffers due to the inelastic nature of transport.