Finance Bill

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Mr. Jack: I rise to pass an observation on the logic behind the proposal. When the change to excise duty was originally introduced, the Government told us that it was intended to encourage cars that had low carbon dioxide emissions. Yet we found that cars included in the original proposals produced higher carbon dioxide emissions than those excluded. The original argument was that the reduction in vehicle excise duty would in some way cause people to change their buying arrangements. However, the new arrangements at £55 a year are the equivalent of a saving of £165 over three years. That will not have a substantial effect on the car-buying decisions of those who pay for their cars out of their own pockets.

The proposal moves the threshold from 1,200 cu cm, which seems an entirely arbitrary figure anyway, to 1,549 cu cm. I am intrigued by 1,549 cu cm. Why 1,549 cu cm? Can the Financial Secretary give a detailed explanation as to why not 1,500 cu cm, or 1,449 cu cm or any other number? Why not relate the revised arrangement to the carbon dioxide emissions of cars, particularly of new ones, where the data are readily available? If the Government wanted to prove their green credentials, they would have proposed a different arrangement.

Mr. Timms: I remind the hon. Gentleman that we agreed in last year's Finance Bill that VED for new cars would be charged on the basis of CO2 emissions, and that has taken effect. That arrangement applies to older cars for which data are not readily available.

Mr. Jack: I do not know where new cars are concerned, but the arrangement appears arbitrary. I am always interested to know how decisions are reached. Perhaps the Financial Secretary will tell us why 1,549 cu cm was alighted on. For older cars, why is not the proposal for petrol as generous as for diesel? Many diesel car engines have more cubic centimetres than that, because they have a lower brake horsepower output, but have lower CO2 outputs than vehicles that benefit from the proposals. It appears somewhat harsh, if the Government's real interest is in carbon dioxide emissions, to hit diesel cars.

I should have said, incidentally, that I run a diesel car, so I have some experience of the matter, but I do not plead the case from a selfish point of view; I plead it from the rational point of view of the stated objective, which was supposedly to reduce carbon dioxide emissions.

Mr. Timms: The clause will indeed raise the engine size threshold below which the lower rate of VED—£105—is levied to 1,549 cu cm from 1 July. That means that 5.7 million additional cars will be taxed at the lower rate and the extension will be backdated to November.

That is the next stage of the reform of car vehicle excise duty that we have put in place during recent years. We started in June 1999 with a low rate for cars of below 1,100 cu cm; that rose to 1,200 cu cm on 1 March this year, backdated to March 2000. The Driver and Vehicle Licensing Agency recently wrote to about 3 million keepers of vehicles between 1,100 cu cm and 1,200 cu cm, and is currently making payments against licences for those cars taken out between March 2000 and February 2001. As I said, new cars registered on or after 1 March this year are taxed directly on the basis of their CO2 emissions—I shall return to the point raised by the right hon. Member for Fylde in a moment—the latest change taking effect on 1 July and being backdated to November.

Mr. Clappison: Has the Financial Secretary received correspondence from people who licensed their cars after 1 July last year—say last September or October, just before the announcement—during the period that was covered by the backdating but who were not eligible for it?

Mr. Timms: I cannot recall any letters specifically on that point, although there is certainly a great deal of interest in the matter. In a moment, when I respond to the point made by the right hon. Member for Fylde, I shall refer to some of the issues of boundaries, which certainly excite a good deal of attention, especially concerning the VED arrangements. In this case, the DVLA will write to everybody with cars of between 1,200 and 1,549 cu cm engines who have taken out licences between November 2000 and June 2001, inviting them to apply for a rebate against those licences. Those who have taken out a 12-month licence will receive £55; those with six month licences will receive £27.50.

The hon. Gentleman asked me: why this change of heart since our debate on the subject just under a year ago? The Government has of course listened to the concerns of rural and low-income drivers. We have received a large number of representations about the matter. Especial concern was prompted by the increase in petrol prices caused by the increase in crude oil prices last year, and this is one element in the package of the Government's response. We have listened and made a change that has been widely welcomed. I would hope that all members of the Committee would agree that the Government should be listening to what people say and making changes in response.

Mr. Jack: Will the Financial Secretary give way?

Mr. Timms: Let me make a little more progress, because I want to answer the right hon. Gentleman's questions in a moment. He asked specifically why we had chosen the figure of 1,549 cu cm and whether that was an arbitrary choice. Eagle-eyed members of the Committee may have spotted that the figure announced in the pre-Budget report in November was 1,500 cu cm. The Budget figure was higher at 1,549 cu cm.

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When we first introduced the 1,100 cu cm threshold, Members of Parliament received many letters from constituents who drove 1,107 cu cm, 1,103 cu cm or other cars with engines slightly above the 1,100 cu cm threshold. They were angry that they were missing out on the lower rate. We were anxious to ensure that a similar problem did not arise with the present raising of the threshold. Now anyone driving a 1.5 litre car will benefit from the change. The increase from 1,500 cu cm to 1,549 cu cm brings 80,000 additional vehicles into the scheme. If we had stuck with the 1,500 figure, a significant proportion of those 80,000 would have been writing to their Members of Parliament to complain that they were missing out on the concession. We have addressed the problem, so I hope that no one will feel hard done by.

The right hon. Member for Fylde said that the change would not have much effect. From the letters across my desk, I know that people feel strongly about these matters and I suspect that this signal is effective in making people think about what car to buy. Some people have changed their decision accordingly, so we should not underestimate the potency of this measure as an incentive to opt for smaller cars.

The right hon. Gentleman asked about CO2 emissions as an alternative basis, but the data about emissions from older cars are inadequate. It is now a requirement that the figure appears on the registration document to make it easy for everyone to understand how much they will have to pay for new cars under the new scheme. As similar data for older cars are unavailable, such a system would be much more complicated, costly and bureaucratic process—and feasible only for cars made since 1997. In view of the difficulties, we decided that it was not worth while to proceed on the basis of CO2 emissions.

The right hon. Gentleman also asked about diesel. Diesel's position is fairly reflected under the new arrangements. Again, we did not want to introduce a complex system for older cars and, although it is not a perfect measurement, the size of a vehicle's engine is not a bad proxy for its environmental impact.

The clause provides relief and offers a significant additional tax deduction for car drivers. Car drivers have warmly welcomed it, and I hope that the Committee will, too.

Mr. Jack: I restrained myself from intervening on the Financial Secretary, who was kind enough to answer some of my earlier points, but I want to put on the record the fact that I found his comments interesting. He established a principle in which a minority group, in this case rural motorists—no definition was given as to who or what they were—managed to persuade the Treasury to alter universal car taxation for their benefit. I welcome that suggestion but it will be interesting to know what is the deadweight cost for the help that has been given to the urban motorist to achieve a clearly stated policy objective to assist the rural motorist. I am so intrigued by that that I shall write to Sir John Bourn of the National Audit Office asking him to evaluate the point.

Mr. Timms: I referred to rural and low-income motorists. Is the right hon. Gentleman suggesting that we should have different rates of vehicle excise duty for rural and non-rural motorist? Neither I, nor the right hon. Gentleman—who is a former Treasury Minister—would favour such action.

Mr. Jack: I take the hon. Gentleman's point. His emphasis was low-income motorists and we shall ask for that analysis. There are a fair number of deadweight costs but I shall not detain the Committee further on the matter.

Question put and agreed to.

Clause 8 ordered to stand part of the Bill.

Clause 9

Rates of duty for goods vehicles

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

Mr. Clappison: We now come to the changes in excise duty relating to goods vehicles, which will be of interest to the road haulage industry. I cannot let the matter pass without making a few remarks about the industry and its state.

The changes in clause 9 were announced by the Chancellor as part of the package in his pre-Budget report, in response to the pressures that I described in the previous debate. At the time of the pre-Budget Report, the Chancellor said that the changes were equivalent in value to a cut of 3p in the price of diesel to the haulage industry. However, that 3p is only a small fraction of the total increase in the cost of diesel that has come about since the Government came to office, an increase that has meant that British hauliers are at a significant disadvantage compared with their European counterparts. British diesel prices are still the highest in Europe by some distance; they are substantially higher than they were in 1997 and three quarters of that price is made up of tax and duty.

That disparity is particularly significant in Northern Ireland. According to road fuel prices supplied by the House of Commons Library for 9 April, diesel is 47p a litre in the Republic of Ireland and 77p a litre in the North. The Minister will have seen the interesting article in yesterday's Financial Times outlining the effect on the petrol and diesel retailing industry of disparity in the North. Industry has gone into decline and smuggling is taking its place, controlled by groups in the Province.

Given that the changes are said to be part of a package to help the haulage industry in the face of European competition, has the Minister any statistics for the increase in the number of foreign trucks operating in the United Kingdom in the past four years? Will he also address the question of cabotage, by which foreign firms operate in the domestic business carrying freight from one destination to another in the United Kingdom? What is the extent to which foreign hauliers are taking a share of the internal United Kingdom market?

We were told in the pre-Budget statement that the Chancellor wanted to introduce a vignette system under which non-British companies and lorries would pay their share to Britain for using British roads. The Chancellor apparently adopted it in his pre-Budget statement, although he did not mention it. An accompanying press notice stated that the Government had consulted on the matter and that they would continue to develop their plans to set up a vignette in the coming months. Given that we have been calling for such a system, we should be grateful if the Financial Secretary would tell us what is happening about it.

On the detail of the proposed changes, I ask the Financial Secretary to consider one category of vehicle in particular. I appreciate that several categories relate to goods vehicles and vehicle excise duty. However, I invite the Financial Secretary to give an account of the history of one such vehicle and the reasons for the Government's thinking on the matter. The 40-tonne vehicle on five axles has only recently been allowed on to United Kingdom roads following a European Union directive. The UK Government took the view that that particular lorry causes much more wear and tear on UK roads than the previously permitted and common 38-tonne lorry. I cannot give the technical reasons for that, but the Government have previously placed that fact on the record.

The wear and tear is so great that the 1999 Budget set a relatively high rate of vehicle excise duty for 40-tonne five-axle lorries. That rate was £5,750, compared with £3,210 for 38-tonne five-axle lorries—a significant differential. A press notice said that it was set at that rate

``to discourage strongly the use of these vehicles in view of the additional road damage that they cause''.

The 2000 Budget reduced the rate for the 40-tonne lorry to £3,950, and this year's Budget will reduce it further to £1,850 from December 2001. In view of that dramatic change of the 40-tonne lorry's position in vehicle excise duty, will the Financial Secretary say whether the environmental factors that were enunciated in 1999 and the effect on British roads still apply? Why have both the absolute VED for the 40-tonnes vehicle and the differential with the more common 38-tonne lorry fallen? We would appreciate an outline of the Government's thinking, given that they previously said that the 40-tonne lorry causes wear and tear to, and expense for, our roads.

 

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Prepared 26 April 2001