Unhappy Truckers "Flag Out" in the United Kingdom

By Michael Babb -- Logistics Management, 7/1/1999

London--Among the companies in Britain's transportation industry this year, haulage operators (motor carriers) have been a particularly unhappy lot. Their ranks continue to diminish, dwindling from a peak of nearly 90,000 carriers 20 years ago to around 65,000 today.

Most of that loss can be attributed to larger trailers and more efficient route management. Another factor is cheaper distribution from large, centralized warehouses, which has reshaped Britain's retail business while intensifying competition in the haulage industry. For the first time, moreover, Britain's truckers are faced with foreign competition.

But the newest threat to the trucking industry comes not from better equipment or a change in the European economy, but from policy makers in London. If the Labour government holds sway, perhaps as many as 5,000 carriers may disappear, sending 50,000 truck drivers--about 10 percent of Britain's commercial drivers--out looking for alternative employment.

The crux of the matter is taxation. In the truckers' view, there's too much of it. The government has two barrels loaded and aimed at their heads, they say: One is the high diesel-fuel tax and the other is the vehicle excise duty (VED), the road tax levied on all trucks. All of this adds insult to the injury truckers received when the European Union removed cabotage restrictions last July, which opened the way for foreign-based operators to compete for contracts within the United Kingdom.

If one compares U.K. fuel prices with those in neighboring countries, it's not difficult to see that the operators have a plausible argument. The driver of a truck registered in the United Kingdom hands over US $0.85 to the government for each liter he pumps into its tank--which may hold 1,400 liters. His competitor across the Channel in France pays half that much. Europe's favorite place to buy diesel is Luxembourg, where the tax is a mere $0.29 per liter. It's not surprising, then, that in the United Kingdom, fuel now accounts for 36 percent of a commercial vehicle's operating costs.

The VED is not very popular, either. An operator in the United Kingdom may pay $9,000 in VED taxes per vehicle, while in the Netherlands, the road tax for a similar rig is $1,100. Most of Britain's haulage companies are small, family-owned businesses; three-fourths of them have five or fewer trucks. For them, the VED is tantamount to punishment. It also gives Continental competitors an unfair advantage, they say, because French and Belgian trucks pay nothing to use motorways in the United Kingdom.

The Wrong Tax?

Why is the diesel tax so high in Britain? Ostensibly, environmental concerns are the culprit. Britain's commitment to reduce greenhouse gases has led to higher taxes on pollutants like diesel fuel. Each year the government increases these taxes by an "escalator" factor of 6 percent plus inflation. This year's increase was 8.5 percent, enough to make drivers take to the streets.

"It's the wrong tax, on the wrong people, for the wrong reasons," says Brian Weatherley, editor of Commercial Transport, a publication that has become increasingly sympathetic to the truckers' dilemma and active in support of their agenda. "There are 23 million cars, 400,000 commercial vehicles, and about 80,000 articulated (tractor-trailer) trucks in the United Kingdom," he says. "Why should the truckers shoulder the burden of this environmental tax?"

Unfair taxes also is the rallying cry of Trans-Action, a pressure group formed by truckers who have grown discontented with what they believe is a lack of support from Britain's two main trucking organizations: the Road Haulage Association (RHA), whose members are "for hire" carriers, and the Freight Transportation Association (FTA), which represents "own-account" or private truckers. Both the RHA and FTA have access to government ministers, something heretofore denied the Trans-Action group. While Trans-Action may not have the government's ear, it does have the attention of thousands of truckers who have shown strong support for its organized protests.

The fuel escalator factor is expected to bring $1 billion annually into government coffers. But there is a downside: The RHA estimates that $498 million in potential revenue is lost annually from truckers who make it a point to purchase fuel abroad.

None of this is changing the government's position, however. Taking the environmental high road, Transport Minister Dr. John Reid (who has since left office) defiantly ruled out any compromise over fuel duties and VED rates. He affirmed the government's commitment to the fuel-tax escalator, saying, "It is in the interests of the industry itself, as well as our environment, that every effort is made to increase the efficient use of fuel."

Flagging Out

So embittered have some operators become that they are threatening to register their vehicles in other European Union countries to avoid paying the U.K.'s VED. British carriers, loyal to Queen and country, cite this as an indication of how desperate the situation has become. Still, they insist, they'd rather go out of the country than go out of business.

Since the latest fuel escalator was announced this spring, the RHA says, it has received thousands of inquiries from its members about "flagging out" or registering trucks in other countries. But flagging out may be useful to only a relatively small number of operators--no more than 8,000 by some estimates--that have significant amounts of international business. It's not an option for domestic U.K. operators to move their businesses abroad and then send their trucks back into Britain.

Even for motor carriers that legally may flag out, some risks remain. Moving a business to the Continent may save on VED and fuel taxes, but it also may be more costly in terms of local employment laws and social costs. The RHA, moreover, expects the government will move quickly to close the tax loopholes that permit flagging out.

The majority of U.K. truckers would be satisfied to see the government act in two areas. They want the government to establish an Essential User Rebate (EUR) as well as offset the advantage foreign competitors have in the United Kingdom by charging them tolls for using the country's motorways. Such a charge would be similar to the "vignette" schemes that other European countries use for foreign trucks operating on their roads.

The RHA is the main backer of the rebate. Its scheme parallels the current fuel-duty rebate for buses. Under this plan, "essential users"--defined as commercial vehicles that do not have the same choice over how, where, and when to travel--would be able to claim a rebate of about US $0.30 per liter for fuel used in valid journeys. The validity of mileage would be verified through scrutiny of the tachograph system, which already is installed on all trucks operating in the European Union.