Why Brown should hold his nerve

Roger Harrabinasks if the Chancellor will ignore the myths about oppressed motorists, overtaxed truc

The motoring nation awaits; the Chancellor calculates. With gritted teeth, Gordon Brown and his Treasury team are concocting a mixture of transport measures for this month's pre-Budget autumn statement to stave off further humiliation at the oil refinery gates.

The Prime Minister has raised expectations by implying that listening to the protesters' complaints will equate with acting upon them. His political antennae appear to be guiding him towards cutting the tax on petrol. The Chancellor's analysis tells him the opposite: a 3p-per-litre cut in duty would cost the Exchequer £1.25bn a year and lead to more pollution and traffic; both results harm the economy. For him, a better option would be to cut the cost of the annual tax disc (vehicle excise duty) to prove that he is not anti-car.

But if Brown is to carry off the policy with conviction, he will have to challenge all the myths: that drivers in general are having a hard time; that the government does not spend enough on transport; that farmers are being crippled by high fuel prices; and that truckers bear an unfair tax burden.

Entire regions of Britain have been reshaped to accommodate those lucky enough to drive, to the detriment of those without a car. When I was a boy, it took six hours to travel to Blackpool from my home in Coventry: now, the journey, at the right time of day, takes barely two hours. Car mileage has almost doubled in the past two decades, and it is precisely because motoring is usually such an attractive option that some roads have become congested, and drivers frustrated. Traffic jams, perversely, are a sign that most drivers have not been having a hard time.

The current petrol price is admittedly high; the government has created a new class of poor motoring victims and chosen to ignore their plight. But a consultant to the AA, Professor Stephen Glaister of Imperial College, London, says the vast majority of people can easily afford petrol even now, because the cost of motoring in general has remained static while real incomes have soared. Motoring is 30 per cent cheaper in real terms than it was in 1964, because cars have become more reliable and more efficient and car prices have fallen. In the past two years, competition policy has resulted in a 30 per cent drop in the cost of cars.

To put the motoring myth into perspective, consider the fate of those poor souls who do not own a car. Over the past two decades, as car mobility has almost doubled, bus services have dwindled, local shops closed, and our streets have become dangerous to use, whether on foot or by bicycle. As motoring costs have remained static, bus fares have risen by roughly 70 per cent. Even this month, despite the high petrol price, the retail price index showed that bus fares had increased by more than overall motoring costs.

Bus passengers, indeed, are very much the poor relations of the transport sector. Although the government is attempting to improve bus services, its recent ten-year transport spending plan ploughed most investment into transport systems that benefit the wealthier members of society - especially high-speed trains and inter-city roads, which are disproportionately used by the richest 25 per cent of drivers. The plan offers very little by way of the minor road safety schemes that offer best value for money to the taxpayer while also giving greatest benefit to the poorest, who are most likely to be knocked down by other people's cars.

Labour was forced into a generous (some say profligate) £180bn spending splurge on transport because people said it was taking from motorists without giving back. And it did fail to invest early enough in the potholed road system. But the ten-year plan, launched in July, offered the motoring lobby much more than it had dreamed of. Tony Blair ordered 100 bypasses to prove that Labour loves the car. The Liberal Democrats' claim that the government is not spending enough on transport simply does not stand up.

In the meantime, the controversial fuel tax escalator (whereby fuel tax rises annually by 6 per cent above inflation) has confounded critics by proving a success in its own terms. It raised billions for public services at a time when the government was constrained by the promise not to raise income tax. Moreover, Glaister's research shows that every 10 per cent increase in petrol prices results in a 7 per cent cut in pollution and a 3 per cent reduction in traffic. Without it, he told Radio 4's Today programme, traffic levels and pollution would have risen much more quickly in the UK.

Then there is the overall level of taxation. Although our petrol tax is undoubtedly the highest in Europe, the UK's overall tax burden is the sixth lowest, according to the Organisation for Economic Co-operation and Development. The shift from taxing "good" things such as work and profit to taxing "bad" things such as pollution began under the Tories. The OECD supported the move because, with capital increasingly footloose and voters unwilling to pay tax, it reasoned that western governments would increasingly have to rely for revenue on ecotaxes. When William Hague attacked Brown's first Budget for being anti-car, the fuel tax escalator was still Tory policy. It took the Opec oil price rises to give substance to Hague's charge - but the case is still there to be made for ecotaxes, if Brown wants to make it.

If Brown wishes to retain credibility for a green taxation policy, however, he should address some of the anomalies that so incense the motoring organisations. Why, for example, should drivers pay more taxes while the taxes on household energy use have been reduced? Petrol is not a necessity in the same category as home heating, but Brown would be on stronger moral ground if he increased tax on home fuel and used the profits to insulate the homes of the poor. If the Tories have been opportunist over car taxes, so was Labour when it attacked Tory home energy taxes. Brown is likely, though, to resist calls for a uniform carbon tax across society. This blunt instrument would not allow for the partially discretionary nature of motoring or for the congestion, noise, danger and local air pollution that drivers impose on others.

On petrol tax itself, Brown's options have been restricted by the Tories' offer of a 3p-a-litre cut in fuel tax. If Brown cuts petrol by less, he will be seen as a Scrooge; if he matches the 3p cut, he will hand victory to his Tory shadow, Michael Portillo; and if he cuts more than 3p, it will look like an imprudent election give-away.

Probably his best option is to freeze petrol tax next year, irrespective of inflation. He could also consider a longer-term policy of a fluctuating fuel tax, decreasing when VAT receipts increase from high oil prices, and vice versa. This would be transparent and fair, and would have the advantage of flattening the curves of the oil price.

A short-term motoring sweetener could arrive in further reforms of the annual car tax. The Institute for Public Policy Research, the left-wing think-tank, suggests a cut of £50 a year for cars up to 1800cc. The change, it says, would benefit two-thirds of all motorists by more than the 3p-a-litre that the Tories are offering. And if Labour really wants to help the environment and help the poor, it could go even further and cut tax on the very smallest cars to an administration fee a year of, say, £20. Even in rural areas, the poorest drivers do low mileage, and the countryside lobby usually fails to mention the huge advantages its members enjoy over their city cousins in the low cost of insurance, parking and maintenance.

In addition, something will need to be done to keep the truckers away from the picket lines, even though some analysts think their case is weak.

When excise duty, road tolls and other taxes are taken into account, their costs are just 5 per cent more than the French hauliers' costs, as the Freight Transport Association admits. The truckers' threats last year that many firms would "flag out" their vehicles for foreign registration have not materialised. And independent research for the Road Haulage Forum shows that just 0.06 per cent of UK haulage jobs are going to foreign firms.

The Treasury remains convinced that the real problem in the haulage industry is the level of overcapacity, which may be as much as 30 per cent. As the industry's representatives admit, too many lorries are competing for the food trade, which is the core business of haulage. As a result, the supermarkets can screw down lorry firms to margins that are cripplingly low.

Moreover, the truckers' taxes do not even cover the cost of the damage they do to the roads system and to people's health through air pollution. The Freight Transport Association admitted on the Today programme that the worst trucks on the road cause £28,000 of damage every year - and that does not take into account the full impact of road danger and congestion. But they pay back just £25,000 a year in tax. So British taxpayers have to finance the difference; in order to keep British hauliers in business, they subsidise lorry drivers to smash up the roads.

The implication is not that British truckers should pay less tax, but that foreign hauliers should pay more. The hauliers say that the hidden subsidy to freight helps the European economy, but others argue that it undermines local firms by allowing outsiders to use cheap fuel to move on to their patches and compete for contracts. The outcome is that taxpayers subsidise a process that sees pigs reared in Holland, transported to Italy to be turned into ham, then re-exported to Holland. If the World Trade Organisation were serious about removing subsidies, it would level the playing field for hauliers.

There is wide public sympathy for the lorry drivers as individuals who are suffering economic hardship, and the hauliers warn that they will fight any deal that excludes a diesel price cut. But the Treasury fears that lower diesel costs would simply swell the supermarkets' profits, because they would force even lower rates on the hauliers. Brown is more likely instead to trim the hauliers' excise duty and introduce a "Brit disc" to tax foreign truckers on our roads. This might not have great impact, but it would be popular and patriotic. Brown could also deter the cowboy truckers, who drive down standards and prices, by setting higher entry barriers to the market; he could also pay drivers with the oldest, dirtiest trucks to take them off the road and scrap them. The economy is now buoyant enough for many drivers to find new jobs, unlike the steelworkers and miners before them.

As for the farmers, a deal will have to be done with them, too - especially since recent figures show, in some cases, a 90 per cent drop in farm incomes. Farmers already receive huge subsidies, but their current problems are due mainly to falling incomes rather than rising fuel costs. Bearing that in mind, any rescue package really needs to be tackled at an EU level.

The crucial question for the Chancellor in this critical period will be how far he can retain his nerve and his logic at a time when the nation has been blowing a gasket.

The writer is environment and transport correspondent, for BBC Radio 4's Today programme

This article first appeared in the 23 October 2000 issue of the New Statesman, Why Brown should hold his nerve