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by George Malcolm
Mixed feelings about tax changes
MEMBERS of the Road Haulage Association will have noticed that a survey carried out by its financial advisers has prompted the Association to write to the Chancellor of the Exchequer about tax changes in the 1984 Finance Act which would cause "substantial hardship" to hauliers.
The changes, affecting corporation tax rates and capital allowances, could result in some of them paying tax when they were making losses, the RHA contends.
Mr Neil Fisher, of the RHA's financial advisers — accountants Ernst and Whinney — says that the reason for this situation is that future tax writing down allowances will not be sufficient to match the accounting depreciation of the average haulage operator.
The RHA believes the tax changes will undoubtedly have a serious effect on its members' investment programmes, at a time when they are being required to invest heavily to meet increased environmental and safety standards, as well as meeting the sudden and drastic increases in fuel costs. Leasing rates will also rise, the RHA forecasts.
The association's views on the effect of the reduction and then removal of tax allowances on capital equipment purchases are not shared by everyone in the industry. There is a strong body of opinion that their removal would be good for road transport — at least that part of it which specialises in contract hire and vehicle rental.
They argue that own-account transport fleets will look twice at investing in their own goods vehicles when there are no capital allowances to offset the capital outlay. As a result there will be a much greater incentive to contract hire vehicles on a long term basis and, if not that, either to enter into totally dedicated distribution arrangements or use specialist shared services. Even where a company does decide to keep its own vehicles on the road there is, it is argued, likely to be much stricter controls of numbers with the result that short-term, renting is likely to increase as well.
The differences in view over whether capital allowance removal is good or bad for transport reflects the uncertainty surrounding the whole industry. Almost more than any other business its fortunes are influenced by outside factors. Traditionally, transport mirrors — perhaps more than any other activity — the economic situation in trade and industry generally.
But the uncertainty has got to transport operators! This has been reflected by the moves of the last two decades away from general haulage and into contract hire, dedicated services and storage and distribution. Some companies, particularly Transport Development Group, have diversified successfully into other sectors both at home and overseas with the overseas interests centring on the purchase and expansion of existing transport concerns. TDG has pursued this policy successfully in Europe and other parts of the world, including the USA.
It is therefore particularly interesting to see the National Freight Consortium going down the same road. As the National Freight Corporation, NFC moves to expand overseas were a disaster. Those of the consortium fortunately have a different look to them.
The consortium's attempt to widen the base of its interests are summed up in one paragraph in its recent annual report. This reads: "Three other developments were of longterm significance — introducing NFC into the American transport world; creating partnerships at home and abroad; and diversifying into a non-transport activity."
The NFC philosphy therefore seems to be: "If we are hit by a transport recession we will have other activities which may hold things together. And if a recession here affects everything there is a good chance that our overseas activities will pull us through."
There is another aspect too. The return on investment in transport in the USA, where the NFC's interest is particularly directed, is generally about three times more than in the UK.
Profit margins in haulage generally in Britain are pretty dreadful and the industry, because of fiercely competitive conditions, finds it very difficult to respond quickly to substantial cost increases. The recent announcement of the oil companies of an increase of 7.5p a gallon in fuel prices brings the full price increase over the period since last September to over 32p a gallon. Getting these price rises back from the customer is another matter.
National Bus under the hammer
SINCE the details of the Bill to implement public transport denationalisation were published it has become increasingly apparent that one word describes the industry's future; it is "uncertain".
This is no straightforward deal like the National Freight Consortium buyout of the National Freight Corporation. And its certainly not going to be like British Telecom.
The plan, to break up the assets of National Bus for disposal as independent packages, undoubtedly has the merit that more buyers should be attracted than if it was disposed of by taking it in one lump to the Stock Exchange. But this could be a handicap too because sold in this way, individual companies may not find it so easy to get the public to subscribe, always assuming that every buy-out is by the formation of a public limited company. The probability is that some packages will be bought in their entirety by existing conglomerates with an interest in transport; others will possibly fall to management/staff buyouts.
Although not approaching the size of the British Telecom flotation, disposal of the bus interests is no small deal, estimates putting the value of assets at about five times those of the NFC.
The real losers in the short term are going to be the bus manufacturers. Already bus operators are holding off from buying vehicles and this situation looks likely to continue right through to 1987 when the industry starts to assume its new shape.
In the meantime there is going to be a shortage of orders for everyone, home producers and importers alike. The impact is going to be felt particularly by Leyland, MCW and Dennis, however, because they have been strongest in this sector. In the long-term, with the industry fragmented, increasing market penetration can be expected from the importers, notably Volvo, Scania and Daf since they are here already and should be able more easily to pick off smaller concerns than they can with the present giants.