Making it easier for businesses to do business through lower costs and simpler regulation.
Rising costs continue to place thousands of operators under huge financial constraints.
Over the past 12 months, the total cost of operating an HGV has increased by 6%, following on from a 10% increase from 2023-24. As a direct result of rising costs, many operators are running at a loss with margins wiped out by these increases. In 2024, 469 hauliers filed for insolvency in the UK, a 60% increase on pre-Covid figures.
The continued freeze on fuel duty announced within the Chancellor’s Autumn Budget 2024 was an important step to support Britain’s drivers, and equally the RHA welcomes signals from government made to full expensing extensions for leased assets, reducing tax liabilities for a significant portion of the sector. However, irrespective of these positives, transport operators continue to face a number of increased costs.
Firstly, the sector has recently felt the introduction of a hike to employee national insurance (NI) - reaching 15%. Despite a much welcome employment support allowance of £5,000-£10,500, which can relieve some strain from small operators, RHA members have made clear changes to NI will damage the ability to sustain their workforces. This is further fuelled by National Living Wage (NLW) increases above current inflation in October 2024.
Additionally, Vehicle Excise Duty and the HGV Levy rose with RPI this year, ending a much-needed freeze implemented under the previous government, further squeezing margins in a sector which operates on average margins of 1.58%. Ultimately, rising costs lead to increased prices for everyday goods at best, and business insolvency at its worse.
Finally, the changes made to business rates - the introduction of a higher multiplier for the most valuable properties - disproportionately targets the freight sector where operational requirements for warehouse space. This cost is an unnecessary burden on a sector to which future growth is reliant in symbiotic industries such as advanced manufacturing and construction.
While the personal electric vehicle market is maturing, that is not the case for HGVs and coaches. Market forces alone are not at a stage where it can support a significant shift to zero emission vehicles. When the capital cost of an electric HGV is at least 2.5x a diesel equivalent, the costs are prohibitively expensive for an industry operating on slim profit margins of typically 2%. The technological solution is not yet clear and the risk of a stranded asset is high. Exacerbating the situation is uncertainty over the residual value of the future zero emission fleet, leading to unfavorable financing options being offered to cover the risks involved.
To help solve this situation so that the UK’s Net Zero timelines for HGV decarbonisation can be met, we believe the Government should introduce both a “residual value guarantee” and a “credit risk guarantee” scheme. Designed well, this need not be an expensive nor long-term intervention from the Government, but it would provide greater certainty behind residual values and credit worthiness allowing the finance sector to lower financing costs. In turn, this would speed up the acquisition of zero emission commercial vehicles until such time as vehicle volume production levels allow economies-of-scale to drive down costs naturally.
Whilst we welcome action to freeze VED, we are concerned about the recent reintroduction of the HGV levy and its focus on CO2 emissions. Given the progress the industry has already made in reducing emissions, the lowering amounts of levy funds recouped as fleets modernise will also need to be addressed by an updated system of road taxation.
Some have proposed the introduction of Road User Charging (also known as “Road Pricing”). The RHA does not believe that a patchwork of road charging is a viable option to replace lost tax as we switch to electric vehicles. We believe that a simple single national system of road taxation must be maintained, and that system should be based on the two current proven road transport taxes.
Unified Speed Limits for HGVs
We believe that the speed limits for HGVs should be the same across the UK. There are clear economic benefits for logistics companies who move freight by road in England and Wales where the speed limit on trunk roads is set at 50mph for HGVs.
Businesses operating in Scotland are being denied the efficiencies and benefits of their competitors in the south by being restricted to a maximum speed of 40mph on the same standard of road. This constraint puts Scottish hauliers at a competitive disadvantage.
Our key asks on costs and regulation are:
- Maintain the fuel duty cut and freeze
- Continued freeze of Vehicle Excise Duty for HGVs
- Increased Sleeper Cab Allowance
- A unified speed limit across the UK for HGVs
- Review of road freight regulations which can be simplified and reduced
- Introduce “residual value guarantees” and “credit risk guarantees” to accelerate the uptake of zero emission vehicles.