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Proposed Supply Chain Levy for Road Freight Sector

Blog post written by Brabners LLP

On 1 June 2022, the House of Commons Transport Committee published a report on the road freight supply chain.

The report argues for an overhaul of the logistics sector to ensure that the supply chain, and its workforce, are more robust and resilient. The report, perhaps unfairly, suggests that the sector has “failed to solve its own problems”, which arguably places a disproportionate level of blame on an industry which has been severely impacted by both the Brexit and the Covid-19 pandemic.

The recommendations of the Transport Committee address four main issues in the sector:

  1. Driver availability

The report acknowledges that the lack of HGV drivers has been an area of concern for more than a decade, but states that the Covid-19 pandemic “turned a chronic problem into an acute one”. The report accuses the Government of responding to this issue with a “piecemeal approach” involving a range of limited and/or temporary measures. However, the report goes on to assert that whilst the Government has a role to play, this is a private sector industry which need to “put its own house in order” and in particular to start funding driver training rather than leaving drivers to pay their own fees. This set-up is already common practice in the bus and coach sector.

  1. Driver retention

The report emphasises that unless working conditions improve, retention rates will remain low, and it highlights the lack of high-quality rest facilities as a key issue. In particular, concerns were raised about rest facilities being dirty and vandalised, as well as still lacking proper female provisions. To fix this problem, the Transport Committee recommends that the Government, in consultation with the industry, should set a minimum standard for driver facilities as well as regional targets for building additional parking capacity. The report also recommends that the Government should lead the way in facilitating the upgrading of existing facilities through measures such as reform of the existing planning framework and speeding up negotiations on new leases on Government-owned land to provide security of tenure and encourage investment.

  1. Recruitment

The report highlights that the sector has failed to attract a younger and more diverse workforce, leading to the average age of HGV drivers having risen to 52, with only 3% being under 25, only 1% being female and 96% being white. The report recommends that the “skills bootcamps” introduced by the Government as a faster, more flexible route to becoming an HGV driver be made permanent, funded from the sector’s apprenticeship levy contribution.

  1. Infrastructure

Ultimately, the report calls on the Government to do more to take long-distance freight off the roads and onto the rail and waterways. This would help the country meet its decarbonisation goals but also, the report argues, improve the lives of HGV drivers who would undertake shorter journeys and spend fewer nights away from home.


Supply Chain Levy

One of the key recommendations of the Transport Committee is the introduction of a supply chain levy if the industry does not deliver sufficient increases in driver numbers and high-quality parking facilities in the next two years. The report accuses some large companies, including supermarkets, of exploiting their market power to drive down costs, resulting in very tight margins further down the chain, meaning that there is little financial slack to fund improvements to working conditions or withstand shocks to the labour market or spikes in cost. It is these larger businesses, however, that have most visibly felt the impact of the HGV driver shortage, as they have lately been unable to keep their shelves and petrol pumps stocked.  The levy is therefore proposed to target the production and sales end of the supply chain, including large retailers, oil companies and online service giants, thereby putting the companies which rely on this supply chain, and who have the greatest financial resources, under tangible pressure to improve standards in the industry.

Many in the industry have been keen to point out that these large profits do not trickle further down the supply chain to the companies that transport goods. Industry body Logistics UK points out that the sector “has already made significant investment in the next generation of workers through the apprenticeship levy with £700m paid in by our industry to date. However, due to a lack of appropriate qualifications for the sector, which did not even exist until 2021, only £150 million has been able to be drawn down thus far, representing a tax on our sector and a huge, missed opportunity for recruitment.” The Road Haulage Association also points out that “with firms facing huge financial pressures it’s unreasonable for the logistics sector to fund driver training alone, given the significant upfront cost, the acute shortage of drivers and the difficulties in retaining new drivers due to external factors.”

It is unclear whether the level of overhaul required will be achievable in the two-year period suggested, or what impact the threat of the proposed levy will have on the supply chain. Given the prolonged nature of the issues in the road freight supply chain, and the introduction of the EU’s new Entry/Exit system which is likely to cause further disruption later in 2022, there is an arguable case for greater Government intervention at an earlier date to support an essential industry which has undoubtedly been impacted by factors outside of its control.

This bulletin is for general guidance purposes only and should not be used for any other purpose.

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