House of Commons Hansard Debates for 9 May 1991

Mr. Speaker : Order. I have mentioned the hon. Member for Edinburgh, Leith, but I call Mr. Marlow first.

Mr. Marlow : I do not think that we should be over-sensitive or over -precious about this. One of the roles of this House is to seek to sustain the interests of the people of this country, and from time to time we have to take on vested interests and lobbies. So it is not very pleasant if we are seen as being lobbyists on our own behalf, as we seem to be at the moment.

It is certainly true that many hon. Members work as hard and are as dedicated as anyone in the country, but that is not true of everyone in the House. It is fair and proper that the press should criticise. Sometimes that criticism is not as impartial as we should like it to be, but the press is free, and long may it remain so. Let us not be too precious about it.

Several Hon. Members rose --

Mr. Speaker : Finally, Mr. Ron Brown.

Mr. Ron Brown : Further to that point of order, Mr. Speaker. Your paraphrasing of my statement showed what all of us feel--that the press should not make up a story.

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We are of course open to criticism. It annoys me, however, that a certain tabloid, the Daily Record and the Edinburgh Evening News, recently made up a story that I had forged signatures on an early-day motion. That goes on all the time, even though no such criticisms about me or anyone else have come to your notice. Have I to your knowledge, Mr. Speaker, forged signatures on early-day motions about any issue, sensational or otherwise?

Mr. Speaker : I am certain that that is quite untrue.

Several Hon. Members rose--

Mr. Speaker : Order. I will take one question from Northern Ireland since we have not yet had a comment from there ; then we must move on.

Rev. Martin Smyth (Belfast, South) : I appreciate being called, Mr. Speaker, although I was trying to catch your eye before this matter was raised, but what I have to say is linked with the earlier issue. I support those who defend the right of the press to be free, but the press should give the whole facts. For example, some of us have abstained in person in votes because we were not prepared to vote for or against some motion, so the voting record has distorted what goes on here.

I regret that the Leader of the House is no longer present but I seek guidance from you, Mr. Speaker, following the right hon. Gentleman's response to my question about the extradition treaty in Europe. He said that the Secretary of State for Northern Ireland would explain the Government's position to us. I was actually asking for a statement in the House so that the House would be given responsibility. We learned about this from the Daily Mail yesterday--that is why I said that this was an associated matter ; sometimes the media inform us about things that Ministers do not tell us about in the House--and I am not aware that the Secretary of State for

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Northern Ireland is responsible for dealing with extradition in Europe. The Minister responsible should come to the House so that we can debate the matter with informed minds.

Mr. Speaker : I am sure that those on the Government Front Bench will have heard that.

I have allowed this matter to go on for some time because it is important that the public know the facts about the House of Commons--the fact that Standing Committees meet at 10.30 in the morning, so we do not sit only in the afternoons ; the fact that there are Select Committees, so that the work of Members of Parliament does not go on only in the Chamber ; and there is constituency work as well.

We all agree that we must have a free press in this country ; we also want a responsible press. What has upset a number of parliamentary colleagues today is the fact that some hon. Members, for reasons that they could not help--in one case, a death and in others, illness--were mentioned adversely in a newspaper report. That draws attention to the fact that journalists should do their homework just as we do.

Royal Assent

Mr. Speaker : I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Acts :

Consolidated Fund (No. 2) Act 1991

Representation of the People Act 1991

Civil Jurisdiction and Judgments Act 1991

Tay Road Bridge Order Confirmation Act 1991

Shard Bridge Act 1991

Adelphi Estate Act 1991

Heathrow Express Railway Act 1991.

Act passed in accordance with the provisions of the Parliament Acts 1911 and 1949 : War Crimes Act 1991.

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Orders of the Day

Social Security (Contributions) Bill

Order for Second Reading read.

4.49 pm

The Minister for Social Security and Disabled People (Mr. Nicholas Scott) : I beg to move, That the Bill be now read a Second time The purpose of the Bill is to fill what I believe to be an important gap in the national insurance contributions system as a result of which employers do not pay contributions to the national insurance fund if they pay their employees in cars rather than in cash. As hon. Members will know, the fund is used to finance a wide range of contributory benefits, including retirement pensions and widows' benefits. Its income is generated by levying contributions on employees and their employers and on the self- employed. Under the present law, employers are required to pay contributions on the earnings of all their employees if they are above the lower limit, but earnings are defined in such a way as to exclude payments in kind. This exclusion dates from a time when such payments represented only a very small proportion of people's earnings.

Mr. Tony Marlow (Northampton, North) : My right hon. Friend, very interestingly, has indicated that the national insurance fund is a specific bucket of money to be spent in various areas of Government policy. We are aware of proposals that employees' contributions should go right up the range. If that were to happen, would not national insurance become exactly the same as income tax? It is suggested, in addition, that some people should have to pay 10 per cent. extra in income tax. That, together with the payment of 9 per cent. right up the range, would mean that the managers of the country would be faced with a marginal tax rate increase of about 50 per cent. In those circumstances, as night follows day, every handbag and wallet in the country would be mugged by people seeking this extra money.

Mr. Deputy Speaker (Sir Paul Dean) : I am sure the Minister recognises that this is a comparatively narrow Bill and that we cannot debate the whole range of things that have just been raised.

Mr. Scott : I certainly accept your judgment, Mr. Deputy Speaker. I would not, in any case, have responded in detail to my hon. Friend, although I understand his impatience and his inclination to draw attention to some of the nonsense being suggested by the Opposition in the run-up to the election. In due course, there will be opportunities to tackle these matters.

The situation that the Bill seeks to address dates from a time when payments in kind of this sort represented only a very small proportion of people's earnings. They were generally made on an irregular and infrequent basis and often consisted of goods that were difficult, if not impossible, to value accurately. The situation today is very different. A large number of employers choose to offer their employees a total package of remuneration, which includes substantial non-cash items.

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The commonest and largest such item is the company car. One has only to look at the advertisements in the appointments sections of the national newspapers to see how common that is these days. We estimate that, this year, more than 2 million employees will receive, as part of the remuneration package, the benefit of having a company car. This represents a doubling of the number of company cars since 1985-86. Company cars have become a normal and accepted part of people's earnings. I cannot believe, in those circumstances, that it is right that this form of payment should lie outside the national insurance system. Perhaps I may advance an additional, tangential argument by saying that nor can it be right, given the impact of motoring on the environment, that there should, in a sense, be a built-in encouragement for people to be paid in terms of cars rather than cash.

Sir Geoffrey Finsberg (Hampstead and Highgate) : My right hon. Friend said that one purpose of the national insurance fund is to make provision for such benefits as retirement pensions. If employers are now to pay national insurance contributions in respect of staff motor cars, will the employees get some additional state benefits by way of extra pension?

Mr. Scott : That is certainly not the case. There are certain demands on the national insurance fund. A certain percentage is guaranteed to the national health service. The fund also pays for other contributory benefits. Obviously we, as well as the Government Actuary, monitor the state of the fund, but there is no essential link between the benefits that are paid and the contributions that are received. From year to year, a judgment is made as to contributions and payments. There is no automaticity.

Mr. Roger King (Birmingham, Northfield) : My right hon. Friend has mentioned the number of cars provided by companies for the use of their employees. Does he agree that a vast number of those employees simply must have a company car? I think, for instance, of electricians, washing machine servicers and representatives of confectionery companies. If such a person has a car, it is not part of his remuneration package. The car is needed as a tool of the trade, just as a secretary needs a word processor or a telephone. Surely it is unrealistic to suggest that employers should be especially burdened in this way for providing their employees with the tools to do the job for which they are paid.

Mr. Scott : I shall respond briefly to my hon. Friend, but will give more detail later in my speech. There is a range of provision for company cars. Some cars are, in effect, a perk ; some are essentially a tool of the trade, in the sense that they are necessary to the job ; in the middle, there is a mixture of business and private use, which varies very considerably. I hope that later I shall be able to satisfy hon. Members that the changes that we are making reflect those different uses. If a motor vehicle of one sort or another is used entirely for business purposes it will be outside the scope of this legislation. My hon. Friend referred to such vehicles as being tools of the trade, but where a vehicle is used to a significant extent for private purposes, a halved-scale rate payment will be expected to comply with these provisions. Any vehicle that is used entirely for business purposes will not be covered.

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Mr. James Couchman (Gillingham) : Will the Exchequer make such national insurance contributions in respect of the private use made of ministerial cars--for example, on journeys between home and place of work?

Mr. Scott : Ministerial cars, and, indeed, cars used by some other hon. and right hon. Members, are provided from a Government pool as required. They are not allocated to individuals.

Mr. Couchman : Ah!

Mr. Scott : Having been a Parliamentary Private Secretary, my hon. Friend will know that there are very strict rules about the use to which ministerial vehicles may be put.

Mr. Frank Haynes (Ashfield) : Another story for the Today newspaper.

Mr. Scott : They are no different from the rules applied by Governments of all parties since the war.

Dr. Norman A. Godman (Greenock and Port Glasgow) : I thank the Minister for his characteristic courtesy in giving way.

Can he confirm that the implementation of this legislation will not result in an extra workload on the staff in Department of Social Security offices? In Greenock and Port Glasgow, there is great concern about the slowness with which local offices deal with claims--in particular, claims for backdated benefits. I assure the Minister that this matter concerns people in my constituency.

Mr. Scott : If I may turn the tables on the hon. Gentleman, I should say that I admire his characteristic ingenuity. There is a total distinction between the new Benefits Agency, which I expect to improve the delivery of services to the constituents of all hon. Members, and the Contributions Agency, which will be responsible for the collection of national insurance contributions. There again, my right hon. Friend and my colleagues in the Department expect to see improved performance in the collection of national insurance contributions from employers, the self- employed and so on in coming years. So there will certainly be no impact at all on the service, which we aim to improve, in the local offices of the Benefits Agency.

Returning to my main theme, I do not believe that it is right that the rules should continue to operate in such a way that employers find it financially more attractive to pay their employees with cars rather than with cash. The Bill that I am urging the House to support today aims to correct this imbalance in our present legislation by requiring employers to pay national insurance contributions on cars and free fuel.

Individual employees who are provided with company cars and fuel are at present required to pay income tax on the benefit which they derive from free private motoring. The value of this benefit is assessed using a set of scale charges devised by the Inland Revenue to reflect the costs of owning and running a motor vehicle. We propose that the same scale charge rules shall be used to determine an employer's contribution liability. As with the Inland Revenue scheme, employers will face no contribution payments if a company car is provided purely for business purposes and there is no private mileage. Similarly, there will be reductions in contribution liability where business mileage is high. I believe that to be right. It is a way of

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recognising, within this pattern of provision, that for some employees a car is essential to the performance of their duties, whereas for others--those who do very little business travel- -the car is provided solely or largely for the employees' private use. As the House will know, there is a liability on both employers and employees to pay class 1 contributions. Nevertheless, we have decided--I hope that I can carry the House with me on this--that employees will not be liable to pay contributions in respect of company cars and free fuel. They already pay tax on that use. There is a variety of practical reasons why we have decided not to impose national insurance contributions on those people. First, more than half all employees who have a company car are above the upper earnings limit for contributions. Secondly, employees are already required to pay tax and the imbalance in the tax and contributions rules for them is not so manifest as it is for employers. Finally, the rules for assessing primary contributions make it very difficult to integrate the new system with the existing national insurance contribution arrangements so as to produce a workable system for collecting the new contributions from employees. We believe that the additional complications for employers would be out of all proportion to the extra revenue raised and we therefore intend that employees should be excluded from any new liability.

I turn now to the practical arrangements that we intend to make for the collection of the new contributions. In devising these arrangements we have paid careful attention to the need to produce a scheme which employers can operate with the minimum of extra work. We have therefore decided to stick very closely to existing Inland Revenue rules with which employers are already familiar. Accordingly, the Bill will impose a contribution liability in respect of those employees provided with cars only where a scale charge would apply for tax purposes. Broadly speaking, these are company directors and employees earning more than £8,500 a year, including benefits in kind. The substantial advantage of this approach is that employers are already required to report annually to the Inland Revenue the details of such cars and we see no reason why they should face any particular difficulty in combining that reporting process with the assessment of contribution liability under the terms of this Bill. The annual reporting takes place at the end of each tax year and forms detailing the cars and petrol provided during the previous year have to be sent to the Inland Revenue by 19 June. Under our proposals employers will use the same information, together with guidance which my Department will provide, to assess their contribution liability. The sums due can then be paid to the Inland Revenue as part of the normal PAYE national insurance return. The only other task employers will have to undertake is the inclusion of the contributions paid, in the normal way, in their wages records and end-of-year documentation.

The Bill will enable us to make regulations to determine those arrangements. However, before drafting the regulations, laying them before the House and setting out the practical arrangements for collection, we have invited employers' representatives to comment on the scheme that we have in mind. We will listen very carefully to their views and take them into account before settling the final details. We have time to do that because, although the Bill

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introduces the new contributions from the beginning of the present tax year, they will not be assessed or collected until 1992-93--in essence, in June 1992.

I know that some employers have expressed to us and in the press, to some extent, concern about the need for additional record-keeping. I do not believe that such concern is well founded. As I have explained, details of company cars already have to be provided to the Inland Revenue each year. Only a small amount of additional information will be needed to calculate the appropriate contribution charge. If, for example, the employer intends to claim one of the discounts for high mileage, he will have to satisfy himself that the car was used for more than 2,500 or more than 18,000 business miles during the course of the year. I do not believe that that will represent an insuperable problem.

We believe that in the majority of cases the information will already be available from the employers' records. First, it will be generally clear from the nature of the employee's job whether a discount for business use over 2,500 or 18,000 miles a year is appropriate. Secondly, the employer will be able to check details of business mileage with his employees. Finally, since the employer will be meeting the costs of petrol used for business mileage and may be keeping records for VAT purposes, further information will be available. So I do not believe that this will put any substantial extra burden on employers. There will be no requirement to maintain comprehensive business mileage records in every case and, generally speaking, we shall be adopting precisely the same approach to this as the Inland Revenue does at the moment in assessing individual liability ; and after consulting employers, we shall be providing them with detailed guidance about what information will be required to comply with the requirements of the system.

To ensure that the system is operated correctly, we shall not be giving discounts to employers who at the time that the contributions are due do not know, or cannot say, which business mileage band is appropriate. I believe that that is a sensible protection for the fund. Subsequent adjustments will be possible if the wrong, or insufficient, information was used in the first calculation. In the event of disputes, employers will have access to the existing departmental machinery which at present determines the outcome of contribution problems.

Sir Geoffrey Finsberg : Is my right hon. Friend saying that any disputes should be settled by the Department of Social Security and not by the Inland Revenue? If the details have to go to the Inland Revenue, can he assure us that disputes will be dealt with by the excellent set-up in his Department?

Mr. Scott : My hon. Friend is, of course, very familiar with that system, and we will use exactly the same machinery as we use at the moment to settle contributions disputes.

In essence, we are looking to have here a system of self-assessment, with checks undertaken, in the normal way, by national insurance inspectors, who will obviously want to be sure that employers understand and operate the rules correctly.

Mr. Tim Smith (Beaconsfield) : Before my right hon. Friend continues, I want to ask him about the payments.

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Is not it the case that most national insurance contributions at the moment are collected monthly with PAYE? How much is collected after the end of the national insurance year at the moment, because, as I understand it, in June 1992, £550 million will be due in one lump sum from employers and there are no interest penalties for late payment? How will the Department ensure that the money is paid over on time?

Mr. Scott : Under the Inland Revenue scheme, the money has to be paid by 19 June following the end of the tax year. Those would be our arrangements for any money that had not been paid in the course of ordinary monthly payments. Anything outstanding would have to be paid by 19 June following the end of the tax year. We shall follow the existing arrangements closely. It must be for the convenience of employers that, in establishing the contribution rules, we follow the Inland Revenue as closely as possible. Employers who are familiar with what happens with the Inland Revenue can lock easily into our provisions for national insurance contributions.

I turn now to the individual provisions of the Bill. Clause 1 amends existing legislation and specifies the circumstances in which the new contributions are payable and who will be liable to pay them. It also defines the amount on which the contributions will be calculated and the percentage rate at which they will be charged. Subsections (1) to (4) introduce the new contribution which is to be called "class 1A". The provisions of subsection (5) form the basis of how the contributions will be calculated and who should pay them. The value of employer-provided cars and fuel will be determined, as I explained earlier, by reference to the income tax rules given in sections 157 and 158 and in schedule 6 of the Income and Corporation Taxes Act 1988.

The liability for the new contribution will arise where an amount is chargeable under tax rules for the employment in question and where that employment is employment for which national insurance contributions would be due. The effect of that is to exclude from the new contributions any employee earning less than £8,500 a year, including benefits in kind. Having established the basis of the liability, subsection (5) then identifies the secondary contributor--generally the employer, but not exclusively so--as the person who pays the new contribution.

The Bill deals next with the amount on which the contribution is to be calculated. That is determined by using income tax rules on scale charges for cars and fuel. Subsection (5), therefore, provides for the appropriate discounts and premiums, as well as excluding any case in which the car is not made available for private use or in which fuel is available for business travel. Having established the cash equivalent of the benefit of a car or fuel in that way, the amount of the contribution is calculated at the percentage rate set for the main employers' rate, currently 10.4 per cent. Subsection (5) also makes provision for employers who, because they have insufficient information, are unable to determine the relevant cash equivalent of the benefit of the car or fuel. The Bill provides that, unless the employer has information to the contrary, the cash equivalent is set at the highest relevant level. That will ensure that the discounts for high business mileage are available only to employers who can show that the appropriate conditions are satisfied.

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Further provision is made to allow for this part of the legislation to be amended by regulation following any alteration to the main provisions of the Income and Corporation Taxes Act 1988. Any such alteration is most likely to be brought about by means of a Finance Act and the regulatory power in the Bill therefore avoids the need for additional primary legislation to follow any changes in a Finance Act. The power is limited to such amendment as is necessary or expedient.

Subsection (5) includes a regulation-making power to except persons from liability in prescribed circumstances or to reduce the class 1A contributions due. That power will be exercised only in very limited circumstances. Its purpose is to make special provision for the employers of those taxpayers who benefit from extra-statutory concessions currently made by the Inland Revenue. Broadly there are two such concessions. The first--I say this wearing my secondary, but in many ways more important, hat as Minister for Disabled People--allows disabled drivers to count their home-to-office travel as business mileage. The second grants exemptions from liability in certain circumstances in which a car is made available for use by a member of an employee's or a director's family. Once again, our aim is to ensure that our provisions follow as closely as possible those of the Inland Revenue. Our legal advice is that, under social security law, that can be achieved only by regulations.

Clause 2 extends the current arrangements for the collection of national insurance contributions to the new class 1A contributions. It includes provision for deciding who should pay the charge when employers share the cost of a car, allows for refunds in cases in which the contribution has been overpaid and provides a regulation-making power in respect of record keeping. That parallels existing provisions for class 1 contributions and will include, for example, the need for a record of contributions to be kept on deduction working sheets. The penalty provisions that exist in respect of other class 1 contributions have been extended to class 1A contributions and clause 2 also provides that previous non-payment of contributions can be declared before a court in cases in which legal proceedings are necessary to recover class 1A contributions. The remaining four clauses, the House will be glad to hear, require only a brief explanation. Clause 3 extends the existing adjudicative system so that, where there is a dispute over class 1A contributions, employers will be able to apply to the Secretary of State for resolution of the question. Clause 4 provides that, as for all other contributions, a specified percentage of the new contributions shall be allocated to the national health service. That will make over an estimated £50 million to the NHS from the new contributions. Clause 5 contains provision for Northern Ireland. Finally, clause 6 contains consequential provisions and provides for the Act to have effect from 6 April 1991.

I have said that the purpose of the Bill is to put right an anomaly in the national insurance system which has arisen because of changing practices in employment remuneration. As a result of the Bill, employers will no longer find it so attractive from the financial point of view to pay their employees with cars rather than cash. The scale charge rules will ensure that contributions are levied on a valuation of cars and fuel which is easily understood and calculated. In 1992-93, we expect the new charge to

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generate some £550 million in respect of company cars and a further £60 million in respect of fuel. In terms of overall labour costs, that amounts to about 0.2 per cent.

The charges will be spread among some 300,000 employers, so the additional financial burden should not be exaggerated. Instead, the provisions of the Bill should be seen in the context of the Chancellor's overall Budget judgment, which was good for business. Other Budget measures provide significant improvements, worth £750 million in 1991-92, for business. As now, employers will have a choice of whether they want to provide cars for their employees' private use. If they do, they will now quite properly face a contribution liability in just the same way as if they had paid their employees in cash. I believe that the provisions are long overdue and I commend the Bill to the House.

5.17 pm

Mr. Graham Allen (Nottingham, North) : I am pleased to open a debate on behalf of my party for the first time. It is a unique occasion for me and may be rapidly followed by another unique occasion when I say that there is little in the Bill with which I can find fault. As the Government approach their dying days, they seem to be adopting more and more Labour party policies, so this may not be a unique occasion. I shall welcome the occasions on which I am at the Dispatch Box and can concur with most of what the Government say. The Bill is essentially part of the Budget and its provisions might sit more easily in the Finance Bill. I am pleased to take this chance to thank my eminent colleague, my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown), for nursing me not only through the provisions of the Bill, but through the Finance Bill last year. That was quite an experience for someone like myself.

Mr. Tim Smith : Now we know who writes the hon. Gentleman's speeches.

Mr. Allen : Indeed.

I must admit to some surprise that changing the regulations on company cars requires a social security Bill, although my hon. Friend the Member for Newcastle upon Tyne, East will know that I am very much in favour of the budgetary process being opened up not only to include departmental Budget Bills, but to involve the departmental Select Committees of the House and outside organisations at the pre-Budget stage rather than having the wham, bam, thank you ma'am Budget speech that passes for the Budget process at the moment. A more protracted and intimate relationship between the Executive and the legislature is possible and essential in a modern democracy. My right hon. and learned Friend the Member for Monklands, East (Mr. Smith), the shadow Chancellor, is committed to considering improvements to the budgetary process. He is in the enviable position that almost anything that he ultimately proposes must be an improvement on the current arbitrary, truncated and secretive process.

The Bill relates to national insurance contributions to be paid by employers for the first time in respect of company cars and fuel made available for private use. Most people outside this place will know that in shorthand as the company car perk. Coming new to these matters, it was explained to me that, at its simplest, a company car is

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deemed to add an amount to an individual's income which is liable for tax. The controversy has always arisen over the size of that amount. Seeing certain hon. Members in the Chamber today, no doubt further controversy may arise about the actual amount that should be added to the income and be liable for tax. It has been and remains considerably cheaper for an employer to provide £100-worth of benefits in kind than to provide £100 in cash as net income. The most popular benefit-in-kind device is the company car. I understand that company cars account for 80 per cent. of all benefits in kind. That accounts for the importance of the company car and explains why the Government are taking on that benefit in kind before any others. I welcome the fact that the Government are considering the matter seriously.

There can be little doubt that the company car as a device for avoiding fair tax is destined to diminish in popularity whetever party is in government. The tax regime in the United Kingdom has favoured payment in cars rather than in cash. Despite Government attempts to move to a fairer system, some further evolution may still be necessary, as the Investors' Chronicle survey of executive cars reported last year after the previous Chancellor's bite at the issue. The Investors' Chronicle stated that that earlier attempt brought "a sigh of relief".

"It could have been so much worse. Business had braced itself for a much higher rise, especially in respect of the perk' car which covers a small annual mileage. A rise of 50 per cent. in the scale benefit taxation and banding of Vehicle Excise Duty to penalise large cars had been forecast."

That report concluded on the rather weary note that future Chancellors would perhaps return to those issues and ensure that there was an equal balance between payment in kind and taxation. In spite of the increasing burden of taxation under this Government, the effects of the recession and alleged corporate cost cutting, a recent report from the Monks Partnership revealed continuing and massive use of company cars in the United Kingdom in comparison to our neighbours. For example, in the United Kingdom 96 per cent. of senior financial posts come with a company car, compared with 29 per cent. in France.

The number of people paying tax on company cars has doubled to 2 million in the past four years according to the Inland Revenue. We appear to be a long way from the balance of advantage shifting towards using personal cars and claiming a mileage allowance for business use which is what some people would like to see. Fewer than 5 per cent. of companies expect to reduce the provision of cars and one quarter of employers intend to expand their fleets. It is still a matter of debate whether the proposals in this Bill have the balance right.

Mr. Couchman : The hon. Gentleman has just quoted most interesting figures about the number of employers who expect to reduce or increase the number of company cars that they provide. When was that survey carried out? Was it carried out before this year's Budget or afterwards? The hon. Gentleman's figures seem to conflict with information that I have read in the newspapers.

Mr. Allen : The survey was conducted after last year's Budget.

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Britain still tops the European league for company cars because, even after the proposals in this Bill, Britain will still have by far and away the most favourable company car tax regime in the world. The movement on car perks by consecutive Chancellors may owe more to the eye that they are keeping on potential European directives and European average levels of assistance than to the proposal to eliminate market distortions.

We should be aware of the distorting effect of unfair taxation on the motor industry. There are several eminent representatives of that industry in the Chamber today and they may wish to refer to that point later. Over- concentration on the company car market can weaken its competitiveness overseas. Paying less in tax may encourage companies to accept a slightly higher cost for the vehicles. Higher specifications demanded by company car fleet managers may mean that vehicles are produced to too high a specification to be competitive in certain overseas markets.

Mr. Thompson, the vice chairman of the British Vehicle Rental and Leasing Association, said :

"the corporate sector had tolerated such price increases and there is no sensible mechanism for controlling prices."

That may be part of the explanation why car prices in the United Kingdom are higher than in most parts of Europe. The Monopolies and Mergers Commission report referred to in last week's Financial Times showed that some pre-tax car prices in the United Kingdom are more than 50 per cent. higher than in other European markets.

Business buyers account for an estimated 65 to 70 per cent. of new car sales in the United Kingdom. The Financial Times stated recently that partly as a result of that

"Manufacturers had felt able to impose price increases more readily than elsewhere."

When purchasing abroad is made easier after 1992, United Kingdom car makers may regret the price cushion that has distorted the company car market.

Another reason to tax company cars fairly was referred to by the Minister. They should be so taxed because of their adverse environmental consequences. According to a wide range of studies, company cars are used more, driven further and are larger than private cars. They are driven faster, and their drivers have more accidents, take more risks and drink more alcohol than the drivers of private cars. In addition, since 1988 free parking at work has been exempt from tax and national insurance contributions, adding a further incentive to bring cars to work and create congestion. The National Economic Development Council has estimated that 90 per cent. of cars entering central London between 7 am and 1 pm are subsidised by companies. A study of free parking at work was recently carried out for the NEDC by Transport and Environmental Studies--or TEST. It was found that free parking is a more widespread perk than company cars and most motorists driving to work have their parking costs paid for. The TEST report proposed taxing company-provided parking spaces at a rate equivalent to their rateable or market values. TEST estimated the value of that perk as £2,000 a year for a space in the City of London and £300 a year in Swindon. I understand that the Treasury estimates are £1,500 and £500 respectively. Free parking has been estimated by Earth Resources research for Greenpeace to result in a £408 million revenue loss, comprising £288 million in tax,

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£30 million in employees' national insurance contributions and £90 million in employers' national insurance contributions.

It should be noted that the exemption of tax and national insurance contributions on parking at work was introduced only in the 1988 Budget on the ground that calculations of its value were too complicated. Of course, since then the revaluation of business premises with the introduction of the uniform business rate has made valuation potentially easier.

The other main unresolved issue about company cars is evasion. There is some evidence that evasion is considerable and that much business use of cars is simply not declared. There are considerable discrepancies between Inland Revenue figures for those declaring company cars and Department of Transport registration figures. Earth Resources estimate that as many as half those using company cars may not be paying their full tax on them. There can be no question but that hidden subsidies to the car are detrimental not least to the taxpayer but to other transport users or providers such as the railways and other more environmentally friendly means of transportation. Greenpeace estimates that the company car subsidy costs £150 per household, or £3.4 billion, to the nation. Government funding for all forms of public transport is lower than the subsidy for company cars and investment in road transport.

A difficult matter that has been touched on by hon. Members is that the bona fide company car user is in a different category from highly paid executives who have a company car almost exclusively, as the Minister said, as an executive perk. That is a peculiarly British institution. The Investors' Chronicle put its finger on the issue when it said :

"Only the naive believe that companies provide employees with cars merely to allow them to perform their duties properly. User-choices perceive their cars as a reflection of their status." Indeed, 70,000 individuals have two or more company cars. Of those earning over £35,000 a year, a staggering 73 per cent. have a company car.

There appears to be consensus that the present tax regime penalises the high business mileage user but is overly generous to high status and low business mileage users. Even after the passage of the Bill, future Governments will need to rethink their policy and relate the level of taxation more closely to business mileage. One aim could be to ensure that the high business mileage driver can be better off with a mileage allowance on his or her own car rather than a company car. Placing national insurance contributions on company cars is a long-overdue rectification of an unfair anomaly in our tax system.

Mr. Couchman : Is the hon. Gentleman under the impression that national insurance contributions are not presently leviable on the use of a company car for private use?

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