18 March 2010
Next week the Chancellor presents a pre-election budget. This briefing looks at what he will say – and more importantly what he probably won’t say – about transport taxation and spending
In hard times, it’s easier to cut spending and raise taxes on transport than in other areas. That’s likely to be particularly true this time. Transport offers ready ways of raising cash to contribute to cutting the deficit, and the main parties have all signalled that transport won’t be one of the areas protected from spending cuts.
Campaign for Better Transport is producing its own transport budget suggesting where cuts can be made and where revenue from transport can be raised.
Motoring Fuel: the Government is already committed to an extra 3p/litre tax from 1 April. Motoring groups and hauliers have started to protest at this, mainly because (unlike in previous recessions) the price of crude oil has remained high so fuel prices at the pump have not fallen. However, there are at present no sign of fuel protests of the sort that blockaded refineries and depots in 2000. The Government is likely to stand firm and keep to the increase, since it needs all the revenue it can get; opposition parties will offer a charging scheme for foreign lorries as a means of pacifying hauliers.
Aviation: the Government has already increased Air Passenger Duty and created new bands; further increases are unlikely this time. However, there are two other opportunities:
Tax on business flights: Smaller business jets and air taxis pay no fuel tax or Air Passenger Duty, and most will be exempt from the Emissions Trading Scheme when that is applied to aviation in 2012. Yet they take up 7% of UK airspace, with around 67,000 flights a year, used by some of the richest people, and are up to 30 times more polluting per passenger than a flight from London City Airport. Campaign for Better Transport has written to the Chancellor recommending a “per plane” tax be levied on these flights, or alternatively that they pay fuel duty, just as leisure flights by small planes already do.
Tax on domestic flights: Ordinary aviation pays no tax on fuel. International law (the Chicago convention) prohibits taxation of fuel on international flights, but Governments can impose taxes on fuel for domestic flights (in fact, the US is one country where this happens). Campaign for Better Transport recommends this approach, with the revenue used to cut train fares so that the green choice is also the cheapest choice.
The Conservatives have said they would consider replacing Air Passenger Duty with a “per plane” tax, so as to give incentives for cleaner and fuller planes. Some airlines like Easyjet support this, though air freight interests like DHL (who pay no aviation taxes at all at present) defeated a Government attempt to introduce it a few years ago.
Commuting and business travel: the Government have already signalled changes in the company car regime to incentivise low emission/ electric cars. There are other revenue raising options available – for example changing the tax-free mileage allowances for business use of private cars, or charging employee national insurance on company cars – but it seems unlikely that these or other changes are going to be in this Budget. However, car allowances for senior public sector employees might be a target for reform. Restricting allowances to essential users would fit with a wider agenda about public sector efficiencies. Any revenue-raising in this area could be balanced by increased concessions for car sharing. New vans might be subject to new bands for vehicle excise duty as with cars, to reward models with low emissions and fuel economy. The HMRC has recently redefined rules on “salary sacrifice” public transport schemes, which has ended tax-free bus season tickets for many employees. Campaign for Better Transport wants a new concession linked to employee travel plans to give people an incentive to use buses and trains rather than cars to get to work.
Transport has not been protected from cuts in spending – meaning that it will be targeted strongly. However, the Budget is unlikely to mention this, and indeed will trumpet commitments to Andrew Adonis’s high speed rail plan announced last week, secure in the knowledge that most spending on this won’t happen until 2017 if not later.
Transport will in fact face bigger cuts than is apparent from the Department for Transport budget because some transport funding (for example for road maintenance and buses) comes through general local government revenue funding, which is also likely to be squeezed.
Making immediate cuts in transport is not straightforward:
- Rail spending is difficult to cut immediately because the Government is tied into rail franchise contracts, most of which are not up for renewal for a few years, and are into a 5 year settlement with Network Rail which is subject to independent regulation. In fact, the franchise contracts, which require the Government to compensate operators if there is a downturn, are already resulting in increased Government rail spending and cuts in other transport spending to pay for this
- London transport spending is subject to an agreement with the Mayor which would need to be renegotiated;
- Free bus fares for pensioners is expensive but popular (and all parties have said they will protect this scheme).
This leaves a few obvious targets:
Local transport in the rest of England – where councils have been told unofficially to expect 30-50% cuts in capital funding;
The £6bn national roads programme: Road projects have become very expensive, particularly as benefits are dubious and run counter to the Goverments carbon reduction commitments. Campaign for Better Transport has been pointing to the upgrade of 21 miles of the A14 road around Huntingdon, which is now costed at £1.3bn, as a strong candidate for cuts.
Crossrail: There remains a question mark over Crossrail in London, but many contracts for this are on the point of being let, and a lot of the funding is coming from property taxes and other revenue, so it may escape the axe.
In practice then, transport spending cuts are likely to hit local transport hardest – funding for repairing the winter potholes or keeping subsidised bus services going is likely to be the big casualty – with passengers likely to hit fare increases.
The Government could impose bigger fares rises than are already slated. Public transport users are already facing fares rises – the Government is increasing regulated train fares by 1% above RPI per year, and in Southeastern’s high speed rail franchise area commuters face rises of RPI +3%. Campaign for Better Transport is running a campaign to reverse this and is getting a lot of support from the South East and London marginal seats with many commuters.
There are more radical options in discussion by decision-makers, such as privatising and tolling the motorways or national road user charging, but no party will mention them this side of the election. The Budget may however commit to an infrastructure bank that could incorporate assets such as the motorway network to raise private capital for transport and other infrastructure.
Transport may be one of the big losers in the post election spending squeeze (as it has in past recessions). But it is unlikely that the Budget will discuss this much, and opposition parties may not mention it much either.
Campaign for Better Transport spokespeople will be available to comment on the Budget.
In particular we will be looking for commitments to
- protect spending on public and local transport,
- review the policy of increasing rail fares, and
- pay for the above by raising revenue from aviation taxes and from cuts in big roads projects.