Finance Bill

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Mr. Edward Davey: I echo some of the remarks made by the hon. Member for West Dorset. The Financial Secretary is known as a clever man, and Customs and Excise is known to have clever people in it. It is not beyond the wit of the Financial Secretary or his officials to devise a scheme to ensure that we comply with EU law and that all the flights arriving at and departing from the Scottish highlands and islands and other remote areas are exempt from APD. If he thinks that amendment No. 31 does not achieve that, I challenge him to find an alternative.

I think that amendment No. 31 is sufficient-it is in line with the objective criterion set out. The Financial Secretary's sole argument related to the costs of flights from the UK to Iceland. When knocking on doors in Orkney, Shetland, Caithness, Sutherland, Ross, Skye and so on, I am not sure how concerned they will be about the costs that might occur in relation to flights from UK airports to Iceland. All that they will notice is the cost that they still have to pay. In introducing the exemption, the Financial Secretary clearly wanted to score political brownie points, which is fair game in this world. However, he is almost scoring an own goal, as he is not prepared to go the whole hog. I cannot believe the initial estimate that he gave to the Committee of costs of 10 million. I intend to table parliamentary questions to test that estimate, as I cannot believe that the cost would be so high. I cannot agree with his argument.

The Financial Secretary's argument against amendment No. 32 seemed to be that it would lead to huge avoidance; that up and down the United Kingdom coastline, aircraft operators would suddenly invest in a boat service to islands to which they were otherwise providing air services. Passengers would not therefore pay air passenger duty. If that is not a Customs and Excise argument par excellence, I do not know what is. It is arrant nonsense to suppose that air service operators would, every so often, invest in or hire ships to try to obtain the exemption.

To be fair to the Financial Secretary, he was not dismissing the case. I welcome that. When he replies, I hope that he will say that the Government will look favourably on the issue as it affects the Isles of Scilly and other island communities. I hope that he and his officials will examine whether an amendment can be drafted to deal with all the avoidance issues dreamed of by Customs and Excise officials, and that such an amendment will be tabled on Report. I agree that the provision does not currently affect the Isles of Scilly, but it puts a cap on the development of lifeline services that are needed by that community. If the Financial Secretary can provide the necessary assurances, we shall not press the amendment to a vote.

Question put, That the amendment be made:-

The Committee divided: Ayes 7, Noes 15.

Division No. 6]

Burnett, Mr. John
Davey, Mr. Edward
Faber, Mr. David
Heathcoat-Amory, Mr. DavidJack, Mr. Michael
Letwin, Mr. Oliver
Simpson, Mr. Keith

Allen, Mr. Graham
Best, Mr. Harold
Casale, Mr. Roger
Clapham, Mr. Michael
Colman, Mr. Tony
Gardiner, Mr. Barry
Kemp, Mr. Fraser
Leslie, Mr. ChristopherMountford, Kali
Pond, Mr. Chris
Primarolo, Dawn
Rammell, Mr. Bill
Ryan, Joan
Timms, Mr. Stephen
Winterton, Ms Rosie

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Mr. Edward Davey: How does the Treasury intend to define the Scottish highlands and islands? That may seem an odd question, but I understand from my hon. Friends that for different Government Departments and Government functions, the Scottish highlands and islands have different borders assigned to them by the Government. Which airports will be encompassed by the Treasury definition? I should be grateful if the Financial Secretary would give the Committee some idea of the definition that the Treasury intends to use and, perhaps, write to me about the matter in detail later, following the end of our proceedings.

Mr. Burnett: The Financial Secretary mentioned an off-the-cuff figure of 10 million in our earlier discussion. I am especially anxious to know whether flights to non-EU countries such as Iceland and Norway are included in that 10 million estimate. The Financial Secretary may correct me, but I understand that the competition policy involved is EU competition policy, not competition policy for countries outside the EU.

Mr. Timms: The intention is that the exemption will apply to the region covered by Highlands and Islands Enterprise. The legal anxieties of the EU relate to activity involving the European Economic Area. That is why Iceland and Norway would feature and why we must ensure that the provision is proof from challenge in respect of those countries as well as countries within the EU. The entire EEA would be affected.

Question put and agreed to.

Clause 19 ordered to stand part of the Bill.

Clause 20

Threshold for reduced general rate

Mr. Jack: I beg to move amendment No. 37, in page 15, line 39, leave out from ``specified),'' to end of line 41 and insert-

    `(a) in sub-paragraph (2), for the word ``having'' there shall be substituted-


    (i) has a CO2 output lower than or equal to the average figure for a motor vehicle with an engine capacity not exceeding 1,200 cubic centimetres as at 1st March 2001;

    (ii) is powered by Liquefied Petroleum Gas; or

    (iii) has''; and

    (b) in sub-paragraph (2A), for the word ``having'' there shall be substituted-


    (i) has a CO2 output lower than or equal to the average figure for a motor vehicle with an engine capacity not exceeding 1,200 cubic centimetres as at 1st March 2001;

    (ii) is powered by Liquefied Petroleum Gas; or

    (iii) has''.'.

The Chairman: With this it will be convenient to discuss the following amendments: No. 23, in page 15, line 41, leave out ``1,200'' and insert ``1,400''.

No. 24, in page 16, line 4, leave out ``1,200'' and insert ``1,400''.

Mr. Jack: One may wonder why anyone should table an amendment to a measure that will reduce the cost of vehicle excise duty for a particular class of motorist. Page 151 of the Red Book states that the measure will cost 120 million per year.

I have a long-standing and passionate interest in cars. Engines have improved in efficiency over time, owing to technology and rising fuel prices. In the past year, the Government chose to introduce a discount in VED for vehicles with engines up to 1100 cc. As we said in Committee, some more powerful vehicles have a lower carbon dioxide output than some small-engine sub-1100 cc cars whose drivers gained from the discount. The discount scheme was originally supposed to encourage people to run more economical vehicles. I examined the illogicalities that the scheme had introduced at the time, only to be confronted by a further extension of it this year, in a clause that will move the discount break from 1100 cc to 1200 cc.

I got in touch with Ford, and received a letter from Madlin Sadler, who is manager of the company's Government affairs department. The letter states that the raising of the discount break point

    will inevitably cause a distortion in new car sales this year-

and this is the crucial sentence-

    It remains our view that engine size cannot be used as a true proxy for fuel efficiency.

I struggle to understand why the Government have almost arbitrarily decided that smaller-engined cars alone should get the discount. If they were genuinely interested in encouraging lower overall fuel usage or reductions in emissions, they might have taken a different approach. The Government prefer using sticks to using carrots; they use that approach not only in clause 20 but in subsequent clauses, and it worries me. However, I will not be tempted into discussing the issue, which will become more relevant when we discuss the four-way banded VED system.

There is an inconsistency in the Government's approach, if concern with carbon dioxide emissions is supposed to lie at the heart of their proposal. The Society of Motor Manufacturers and Traders provided me with a list of the top 35 cars for low CO2 emissions sold in the United Kingdom. Clearly, low CO2 emissions are a proxy for good fuel economy and the good thermo-dynamic characteristics of the engine and other parts of the car. Eighteen of the 35 models listed with a CO2 output per kilometre of 140 g or less receive no help from the discount arrangement that it is proposed arbitrarily to start at 1200 cc. The logic of the Government's action is lost on me.

The Society of Motor Manufacturers and Traders kindly provided me with a comprehensive list of carbon dioxide emissions for other cars. It is noticeable that the carbon dioxide emissions of Nissan Micra 93s are 152 g of CO2 per kilometre or above. Their engine size is 998 cc and they gain a discount, whereas the Audi A3 diesel car of 1.8 litre capacity with a CO2 output per kilometre of 138 g receives no gain. Let us consider the Rover 100-an 1120 cc car-of which there are a lot still around and which comes within the Government's proposals. Its CO2 output per kilometer is 157 g. I pray in aid the 1124 cc Citroen Saxo, which has a CO2 output of 159 g of carbon dioxide per kilometre. I say to those manufacturers who may think that I have picked selectively on their cars that those were three out of a long list of inconsistencies that caught my eye.

I question in some detail the objective of the measures. The Government are being unnecessarily harsh on cars that have an extremely good carbon dioxide emissions record by virtue of an arbitrary move from 1100 to 1200 cc. If their objective is to reduce CO2 emissions and make use of the hydrocarbons expended in moving motor vehicles from A to B, other cars should also benefit if the Government truly believe that that discount will encourage the development and sales of more economical cars. My view, for what it is worth, is that more compelling factors affect people's purchase decision than the VED discount. Any discount is better than no discount and one should, in principle, be in favour of it, but I am struggling to see the logic in the Government's argument, which is why I am rightly questioning it.

The second part of the amendment deals with liquefied petroleum gas. I am indebted to the Calor company, which clearly has an interest in such matters, for sending me information. Last year, when considering the Finance Bill on Report, we debated LPG in the context of the fact that of all of the fuels currently available as a mass item, as opposed to some of the more esoteric fuels, it has several positive attributes. In fairness, I must say that the Government have recognised that in the context of fuel duty.

However, the Government have not wholeheartedly and enthusiastically embraced LPG. It is a remarkable fuel; it delivers some clean emissions with good performance characteristics. I wish to take this opportunity to publicly congratulate Vauxhall for the way in which it pioneered the use of LPG in the Vauxhall Vectra car championship by illustrating that, even in the fearsome heat of motor racing, an LPG car can give its petrol-driven rivals an extremely good run for their money, which shows that it is a sensible mainstream fuel. Even the Government car service has moved to dual-fuel cars, so full marks to Ministers for favouring the use of LPG.

Calor's briefing states:

    The point is that cars and vans propelled by LPG are not only cleaner on emissions of carbon dioxide, they are significantly cleaner on emissions on benzene, 1,3 butadiene, carbon monoxide, nitrogen dioxide, particulates and sulphur dioxide-all major targets of the Air Quality Strategy, for sound reasons of public health and avoiding damage to buildings, crops and the environment.

I refer members of the Committee to my remarks on the Report stage of last year's Finance Bill about the health gains from the use of LPG.

11.45 am

In terms of inner-city air quality, it strikes me as laudable to encourage and make it easier for people to use a fuel that clearly has good emission characteristics but that also, if used on a wider basis, could significantly contribute to cleaning up air in our big cities. Despite benevolent remarks from various sources, LPG cars do not receive any gains under the VED discount scheme. On grounds of consistency, I ask whether the Government are serious about using some of the 120 million to improve efficiency and air quality. If they are, why have they not included LPG cars?

When one looks back at the first move from leaded to unleaded petrol, it is interesting to see that the fiscal encouragement led to a significant change against the background of provable medical risk. No one objected to the public purse being used to accelerate the uptake of that better quality fuel. LPG seems to exhibit some similar characteristics, yet it receives limited help.

I shall be interested to hear a logical explanation from the Financial Secretary as to why 1200 cc has been arbitrarily selected and why LPG has not been included in the benefit. If we had a more logical system, it would be better for all, especially those who live in cities and have to breathe the output of the vehicles that I have mentioned.

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