Legal base	Article 71(1) EC; co-decision; QMV
Department	Transport
Basis of consideration	Minister's letter of 27 January 2009
Previous Committee Report	HC 16-xxx (2007-08), chapter 5 (8 October 2008) and HC 16-xxxvi (2007-08), chapter 7 (26 November 2008)
To be discussed in Council	30-31 March 2009
Committee's assessment	Politically important
Committee's decision	Cleared

Background

8.1 Directive 1999/62/EC, the Eurovignette Directive, sets out detailed rules governing the imposition of tolls, user charges and vehicle excise duties on heavy goods vehicles using the Trans-European Road Network. The Directive does not require Member States to introduce charging, but, should they choose to do so, they would be obliged to comply with the rules in the Directive. The Directive was amended by Directive 2006/38/EC[30] to take account of developments in road charging since the original Directive and to elaborate the principles governing any tolling arrangements that Member States choose to apply to heavy goods vehicles. This draft Directive would further amend Directive 1999/62/EC (and it is part of a wider so-called "greening transport" package adopted by the Commission).[31]

8.2 The first main change to be made by the draft Directive relates to the existing Directive's limitation of charges to what is needed to cover infrastructure costs. The new proposal would allow Member States to decide whether or not to levy tolls to cover some external costs — local air pollution, congestion and noise. The calculation would have to be according to a methodology set out in a new annex and revenues from any external cost charges imposed would have to be reinvested in transport.

8.3 The other main change relates to the current Directive applying its detailed rules only to tolling schemes on the Trans-European Road Network, but allowing Member States to apply charging regimes on other roads provided they respect the Community principles of non-discrimination and freedom of movement. The new proposal would apply the detailed rules to all roads subject to charge, though there is a separate provision which makes clear that Member States are not prevented from introducing environmental or congestion charges on urban roads in built-up areas.

8.4 Other provisions in the draft Directive include a requirement that:

• any external cost charge is set by an independent authority in the Member State;
• any external cost charge must be collected by electronic means after 2013; and
• a requirement on the Commission to produce a report by 2013 on implementation and covering matters such as the treatment of carbon dioxide, whether to extend the Directive beyond lorries and the feasibility of minimum distance based charges.

Finally, much of the text of the draft Directive reproduces text from the existing Directive and is therefore not new, but in some cases the text has been rationalised.

8.5 When we considered this proposal, in October 2008, we said that the general intentions of this proposal seemed unexceptional. However we noted several points the Government had drawn to our attention and that its consideration of the draft Directive seemed to be at an early stage. So before considering the document further we asked to hear:

• whether a methodology for assessing the costs of externalities had proved satisfactory;
• whether evolution of the text, particularly in relation to localised charges, had justified support for extending the present Directive's rules to all charged roads;
• whether a derogation from differentiation of charges by environmental class of vehicle had been restored;
• whether a tax legal base had proved necessary;
• whether a hypothecation issue had been resolved;
• about the outcome of the Government's consultation;
• whether it had decided it also needed to produce an impact assessment; and
• what further information about impacts had been received from the Commission.

8.6 In November 2008 we considered responses from the Government in relation to consultations and impact assessments, noting that no points were made in the former that would require change to the Government's broad support for the draft Directive. We also heard about developments on the substance of the draft Directive, the Government telling us that us that:

• the Government was satisfied that the methodology for assessing the costs of externalities proposed by the Commission reflected current best practice and was compatible with the UK approach to such calculations;
• the methodology was constraining on charges, but, on the one hand, under the current Directive Member States had no freedom whatsoever to apply external cost charges at all, while, on the other, given the concerns of peripheral Member States over high transit charges some constraints were necessary;
• some Member States had expressed reservations about allowing the inclusion of congestion costs. The French Presidency had suggested that congestion charges for lorries should be recovered only where there were demand management arrangements in place for all vehicles;
• the Government was sympathetic to the argument — lorries were not the sole cause of congestion — and would agree to such a provision provided it could be drafted in such a way as to avoid the side-effect of extending the scope of Community legislation to cars — which no Member State wanted;
• the grounds for derogation from differentiation of charges by environmental class of vehicle had been incorporated in the then text of the draft Directive;
• the then text of the draft Directive reverted to the present situation of the detailed rules applying only to the Trans-European Road Network. The Government could have accepted the Commission's proposal for a wider scope but was content to revert to the more limited approach used in Directive 2006/38/EC;
• the then text of the draft Directive provided the Government with more confidence that localised charging arrangements such as the London Congestion Charge and the Dartford Crossing charges would fall outside the detailed rules. The text was not quite settled but the Government anticipated an acceptable outcome; and
• little progress had been made on the legal base and earmarking (hypothecation). The UK was among a number of Member States with reserves on these points, though some of these appeared to be tactical and might not hold.

8.7 The Government told us that, apart from its concerns about the legal base and earmarking, the text of the draft Directive was heading in the right direction and that it remained supportive of the overall thrust of the proposal, which would give the Government greater freedom to introduce lorry charges should it decide to do so in the future. The Government added that:

• on the legal base point the Government was considering the use of a minutes statement along the lines used in similar circumstances in the past; and
• the Government did, and would continue to, oppose mandatory earmarking.

8.8 We were also told that:

• continuing negotiations might produce a satisfactory outcome on earmarking;
• if so, the Government might have found it necessary to support a general approach at the Transport Council of 8-9 December 2008; and
• this would have been in order to secure negotiated improvements to the text, even though we would not have been able to scrutinise further developments on the outstanding issues.

8.9 We noted that most of the issues on which we had awaited further information had been resolved satisfactorily. However we were concerned that:

• the Government might rely on a minutes statement at a Council meeting rather than an appropriate legal base in the actual legislation; and
• we might not have had the opportunity to scrutinise the proposed outcome on the earmarking issue.

We said that we wanted to consider further developments on these two issues before the Council adopted a general approach and so we very much hoped that the Government would not be acquiescing in such a general approach at the forthcoming Transport Council. We kept the document under scrutiny.[32]

The Minister's letter

8.10 The Parliamentary Under-Secretary of State, Department for Transport (Paul Clark) writes now to tell us first that in the event a general approach was not agreed at the December 2008 Transport Council. The Minister then says that, although the current draft text remains largely acceptable to the Government, the two main concerns, the legal base and the requirement that revenues should be earmarked (hypothecated) for investment in transport, are outstanding.

8.11 Turning first to earmarking the Minister tells us that it appears that the Czech Presidency will wish to seek agreement to a text similar to that in Directive 2006/38/EC, which is intended to stop short of a legally binding requirement to hypothecate any charging revenues to transport. He says that:

• subject to being satisfied that the text does not have legally binding effect, and subject to other points being resolved, the Government may wish to signal its agreement to such an approach as part of an overall deal on this issue with the European Parliament, which strongly favours legally binding hypothecation; and
• the Government does and will oppose mandatory (legally binding) earmarking of revenues.

8.12 The Minister continues, in relation to the issue of the legal base for the draft Directive that:

• the UK is one of seven Member States reserving their positions on the legal base;
• it is debatable whether the sorts of lorry tolls or charges foreseen by this proposal would formally be classified as taxes — those making decisions on classification would want to look closely at the detailed structure of any scheme;
• although Directive 1999/62/EC was adopted under a dual (transport and tax) legal base, the amending Directive 2006/38/EC was adopted under a single (transport) legal base;
• the original 1999 Directive contained provisions on minimum levels of vehicle taxes, which were clearly fiscal in nature, the amending Directive did not touch these provisions and modified only the articles relating to tolls and user charges;
• the unanimity requirement for tax measures ensures that the UK can veto any proposal that constrains the Government's flexibility in the fiscal sphere, but it is important to note that the impact of the present proposal would relax constraints on the levels of tolls it could charge for lorries, should the Government choose to implement a scheme;
• provided the rest of the text is satisfactory this proposal could represent a useful measure both in increasing flexibility and applying the polluter pays principle;
• the proposal does not raise any new issues of principle compared to Directive 2006/38/EC, where the Government ultimately voted in favour of the proposal accompanied by a minutes statement, setting out its view on the legal base and making its vote without prejudice to its general stance on tax and the legal base; and
• therefore the Government wishes to keep open the option of accepting the legal base whilst clarifying its position with a minutes statement, particularly if other Member States currently objecting to the legal base withdraw their reservations on this point, such that a blocking minority no longer exists.

8.13 The Minister concludes that discussions are continuing on these issues, with the possibility that a general approach or political agreement will be sought at the Transport Council on 30-31 March 2009 and that the European Parliament plenary first reading of the proposal is currently scheduled for 10 March 2009.

Conclusion

8.14 We note the Government's expectation that a satisfactory, non-binding, text on earmarking can be secured and its justification of a possible use of a minutes statement in relation to the legal base issue. We have no further questions to ask and clear the document.

31   (29848) 11841/08 + ADDs 2-3 (29849) 11842/08 + ADDs 1-2 (29850) 11851/08 + ADD 1: see HC 16-xxx (2007-08), chapters 13, 14 and 15 (8 October 2008). Back

32   See headnote. Back